An umbrella policy provides extra coverage in case your personal policy’s limits are spent in a claim. While the umbrella policy does not apply to every claim, it can provide an extra cushion of coverage to those with higher risk.
Depending on your situation, setting up an umbrella policy could be right for you. Knowing that you have extra coverage in the event of an expensive claim can provide peace of mind and financial security.
How Does It Work?
If you have an expensive liability claim that drains the limits of your personal policy, the umbrella steps in to cover the remainder of the cost. The umbrella also offers a few coverages that your underlying policy doesn’t, but usually only in liability cases.
Umbrella policies are not standalone policies. There must be an underlying policy attached to it that carries minimum liability limits on auto & homeowners’ insurance in order for you to qualify.
What Does It Cover?
The umbrella policy can cover liability claims, which are claims that you are legally responsible for because of an event of negligence. These are typically the most expensive type of claims because of the potential for filed suits. Once the underlying policy’s limits are exhausted, the umbrella can cover things like:
- Injury from auto accidents
- Property damage
- Injury on your property
Some extra coverages that are common for umbrellas to cover that are not usually covered by the base policy are:
- Libel & slander
- False arrest
- Rental property liability
- Legal defense fees
It is common for umbrella policies to carry $1 million in limits, but this can vary by your needs and your insurance carrier.
What Does It Not Cover?
Here are a few things that your umbrella policy will not cover:
- Your own property damage
- Your own injuries
- Intentional acts
- Business & professional liability
It is important to remember that if a claim is under the limits of your underlying policy, the umbrella will not be used. Just because you have available limits on your policy does not mean that your insurance company will pay them out whenever you have a claim. They will only pay what they determine the claim is worth, even if the policy limits are high.
Who Needs It?
Anyone with higher risk exposure should consider an umbrella policy. Below are some risks to get extra coverage for:
- Teenage drivers — Since these drivers are inexperienced, they pose a risk for more accidents that they could be held liable for.
- High-worth assets — Because of your assets (whether this is land, money, belongings, etc.), you could be exposed to higher judgements in civil disputes.
- Aggressive pets — If your pet has a history of unpredictable or protective behavior, visitors could be hurt on your property.
- Rental properties — If you have tenants that rent from you, they could bring liability cases against you.
- Pools & trampolines — If you own either of these, they pose a high injury risk to visitors when you are hosting.
If you aren’t sure whether your needs would require an umbrella, talk to an agent about your situation. They can help you determine what coverage would work best for you.
Real-Life Example: Farm Accident
Say you are a rancher, and you have drivers that frequently haul hay and livestock from one location to another. One of your drivers is going down the highway when a bale of hay falls off the back of his trailer and hits multiple cars behind the truck. With multiple people injured and cars destroyed, you quickly reach the limit on your policy for bodily injury & property damage. Luckily, you have an umbrella policy that covers you in this instance, and it takes care of the remainder of the costs from this accident.
You would likely be on the hook for these expenses if you didn’t have an umbrella policy. Sign up for an umbrella policy if you, your family, or your business are involved in higher risk activities.
Frequently Asked Questions
Is an umbrella policy expensive? No. It is relatively inexpensive, and it is usually billed along with your underlying policy premiums.
Does an umbrella policy apply to personal property claims? No. Often, these claims are much less expensive than liability claims are, so an umbrella policy wouldn’t be necessary for personal property anyway.
Is an “umbrella” policy the same as an “excess liability” policy? Often, the names are inter-changeable. People regularly use both when referring to either, but there is a slight difference. An excess liability policy only provides coverage for claims that are over the underlying policy’s limits. While an umbrella policy does the same thing, it can also provide coverage for claims that don’t have any coverage in the underlying policy.
Does my umbrella policy cover legal expenses for a suit that I would like to file against someone else? No. It generally only covers fees for cases that are filed against you.
Final Takeaway
While it is ultimately up to you to sign up for an umbrella policy, it provides an extra cushion of financial security. If you participate in higher risk activities for pleasure or business, consider adding an umbrella policy today.
Contact one of our agents or get a free quote to get started.
Disclaimer: The information included here is designed for informational purposes only. It is not legal, tax, financial or any other sort of advice, nor is it a substitute for such advice. The information may not apply to your specific situation. We have tried to make sure the information is accurate, but it could be outdated or even inaccurate in parts.
