Should your family consider an umbrella insurance policy?
By Kristin Hoppe
January 6, 2022
You're probably familiar with auto and homeowners insurance, but umbrella insurance is not as commonly understood. It could be a short- or long-term solution for your family.
In this article, we'll guide you through umbrella insurance 101, including what's covered and who’s best suited for this policy.
What is an umbrella insurance policy?
In sum, umbrella insurance is additional liability coverage that supplements your home and auto insurance.
There are essentially two different types of umbrella insurance: personal and commercial.
Should a personal incident occur that requires payouts from your home or auto insurance, umbrella insurance can supplement those payouts if you have maxed out the amount possible on the former plans. Additionally, it covers members of your family or household.
Some commercial umbrella insurance also provides coverage to protect you from charges or lawsuits such as libel, slander, business liability, landlord liability, and bodily harm.
Some umbrella insurance policies even cover recreational vehicles like boats, motorcycles, and ATVs — though it depends on your qualifications and the insurer.
You throw a party at your house and one of the guests slips by the pool and slips and hurts themselves, making them unable to work for the next four months.
As the property owner, you could be held liable. That guest could sue you not only to cover their medical bills, but also to cover lost wages until they heal and are able to work again. Perhaps your homeowners insurance would cover a small portion of these costs, but should costs or damages be extensive, umbrella insurance would cover the remaining costs of these liabilities — ranging from $1 million-$10 million — based on your policy.
Another example:
A family member driving your car is determined to be at fault for causing a multi-car accident, resulting in property and medical expenses for multiple individuals. The total costs of that damage could surpass your family’s assets if the people injured decided to pursue legal action. Umbrella insurance would supplement the costs that your auto insurance does not cover, giving you and your family an extra layer of financial protection.
What doesn't umbrella insurance cover?
Umbrella insurance does not stand alone. In order to get an umbrella insurance policy, you first need to have base insurance (such as home and auto insurance). If you have a boat you want to cover, for example, you would also need to have boat insurance first and ensure that the umbrella insurance is willing to cover additional liability on your boat.
And while umbrella insurance does cover instances such as bodily harm and libel, it usually doesn't cover the following:
Physical harm done to others with deliberate malice - Example: If you start a fight and injure someone, the claim would most likely be outside coverage and denied.
Physical harm done to yourself - Example: If you get into a car accident and your auto insurance doesn't cover all of your car repairs or medical bills, you cannot use umbrella insurance to cover your own costs. It's only for the liability purposes of other people.
Related article: Life insurance 101: A quick and easy primer
Who is best suited for umbrella insurance?
The more assets you own, the more likely you'll benefit from umbrella insurance. Individuals with a net worth of $1,000,000 or more may benefit most from the policy.
Umbrella insurance helps protect those assets.
Those who elect to purchase umbrella insurance may be:
High net worth individuals who own many assets or properties
Boat owners
Landlords/those who rent out their homes or vacation homes on VRBO or Airbnb
Public figures
Business owners
People who sit on a nonprofit board
People who work in publishing or media
How much does umbrella insurance cost?
According to the Insurance Information Institute, a $1,000,000 personal umbrella liability policy costs about $150-$300 a year. Another million dollars in coverage costs around $75, and $50 for every million following that.
Because umbrella insurance supplements coverage maxed out from other insurance, insurers may require a certain amount of liability insurance on your auto or homeowners policy before you're eligible.
Many umbrella insurance companies require $300,000 of liability insurance on your homeowners policy and $250,000 on your auto policy.
Where's the best place to find umbrella insurance?
Many different companies offer umbrella insurance with varying benefits. It's easy to shop online and find the right fit for you. Depending on your circumstance, some of the websites to compare and get quotes from include:
For high net worth families – Liberty Mutual, Chubb
For military members – USAA
For small business owners – Travelers
Trustworthy can help
Trustworthy is the Family Operating System®, an online service that helps your family organize, manage and securely share your important family information. You can safely store your insurance information and share it with professionals or your inner circle as needed. Our concierge also helps you find insurance policies that are the best fit for you and your family. You can sign up for a two-week free trial here.
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