- Umbrella insurance provides extra liability coverage coupled with homeowner's, renter's, and auto insurance.
- If you have a high net-worth or higher likelihood of getting sued, umbrella insurance is a good idea.
- A $1 million umbrella insurance policy costs around $150 to $300 per year.
- See Insider's guide to the best homeowners insurance companies .
If someone gets injured on your property, your pet bites a guest, or you hit someone with your car, there is the possibility of a lawsuit. If you have homeowners insurance , renters insurance , or car insurance , you likely have liability coverage. However, there are limits to that coverage. This is where umbrella insurance works.
What is umbrella insurance?
If the mailman slips on your walkway, or someone is injured using your swimming pool , homeowners insurance personal liability coverage protects you. However, basic personal liability homeowners and renters policies typically have a $100,000 coverage limit.
If you're involved in an car accident, liability insurance covers damage you cause to the other vehicle, driver, and its passengers. Liability insurance is required by law and the minimum coverage requirements vary by state. But there are limits to car liability insurance.
Umbrella insurance is extra liability insurance that covers you for losses beyond what's covered by your other insurance policies. Umbrella insurance is like backup insurance for your other insurance policies. The extra insurance is common for people who are concerned that they may be sued for any reason that could threaten their net worth. It covers liability for injuries, libel, vandalism, slander, invasion of privacy, and other scenarios.
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Umbrella insurance doesn't cover injuries to yourself or your household.
How umbrella insurance works
An umbrella policy is liability coverage that's available in addition to your homeowners , renters , or car insurance . Umbrella coverage kicks in after you have used up your personal liability coverage limit.
For example, let's say you are a doctor and accidentally cause a rear-end collision when the car in front of you slammed on its breaks at a yellow light. When exchanging information, the person sees that you're a doctor. They figure you must have a lot of money so all of a sudden their back hurts. Whether the accident really injures someone in an accident, you are more likely to be sued just because you're a doctor.
If your auto insurance has a $1 million limit, but this person sues you for $5 million. At that point, your potential personal liability is $4 million. If you have a $10 million umbrella policy, your personal liability, in this case, would be effectively zero.
A million-dollar umbrella policy costs between $150 and $300 a year, according to the Insurance Information Institute . However, the Institute notes that most carriers require at least $300,000 in personal liability coverage before them an umbrella policy.
Who needs umbrella insurance?
Umbrella insurance is popular with doctors, lawyers, business executives, journalists, public figures, board members, nonprofit volunteers, and anyone with a high-net worth or higher-than-average likelihood of being involved in a lawsuit. If you are a doctor, lawyer, or other professional, your professional liability insurance might offer umbrella policies.
Pet owners
If you have homeowners or renters insurance, pet bites are covered under your policy's personal liability coverage. However, some insurance companies will not offer pet liability coverage for certain dog breeds and exotic pets. This is where umbrella coverage is useful.
Homeowners with pools, trampolines, or drones
Having certain items — like a pool or trampoline — can increase your liability as a homeowner. Similar to swimming pools , some homeowner insurance carriers consider trampolines an "attractive nuisance" and exclude them in policies.
Talk to your financial advisor and insurance agent to see if you need umbrella insurance.
Via PakApNews