Umbrella Insurance 101
If you’re in the market for homeowners insurance or auto insurance, one term that you may have seen or heard thrown around is “umbrella insurance.”
But what exactly is umbrella insurance? What does it cover? How does it differ from a regular homeowners insurance policy? And — perhaps most importantly — how can you determine whether or not you need umbrella insurance?
Below, we take a closer look at umbrella insurance so that you will be better prepared to make a more informed decision about your insurance needs.
What is umbrella insurance?
Despite the name, umbrella insurance has nothing at all to do with the weather. Instead, it’s a form of personal liability insurance that is designed to provide additional coverage on top of what is offered by your homeowners or auto insurance.
It’s essentially extra insurance that you can purchase on top of your homeowners or auto insurance policy in order to give yourself greater peace of mind that if something were to happen, you would be covered.
So why is it called “umbrella” insurance? Well, just like you would deploy an umbrella during a sudden rainstorm to keep yourself dry, your umbrella insurance would deploy during an emergency to protect you.
What does umbrella insurance cover?
Generally speaking, umbrella insurance provides liability coverage. This means that if you were to find yourself the target of a personal liability suit in excess of what is covered by your homeowners or auto insurance, your umbrella policy would kick in to fill the gap.
Importantly, umbrella insurance typically covers all members of your family or household, not just you as the policyholder. This makes it an especially helpful form of insurance for parents of teenage children who are just learning to drive (who may be more likely to get into a car accident).
The coverage offered by umbrella insurance is often broken into the following categories:
Umbrella insurance can provide coverage if you (or a member of your household) are found to be at fault for causing personal or bodily injury to another individual. Typically used to pay for medical bills and other liability claims tied to the injury. Examples of personal/bodily injury events where umbrella insurance might kick in include:
- You are at fault for a major car accident that leads to significant bodily injury to another individual.
- You are at fault for a multi-car accident where numerous individuals are injured.
- Your pet causes injury to an individual.
- Someone is injured on your property (example: a slip and fall).
Umbrella insurance can provide coverage if you (or a member of your household) are found to be liable for causing damage to another individual’s property. Typically used to pay for repairs or replacement of the damaged or destroyed property. Examples of property damage events where umbrella insurance might kick in include:
- You are at fault for a car accident where another driver’s vehicle is totalled.
- You drive into a structure such as your neighbor’s fence or home.
- You are cutting down a tree on your property and it falls unexpectedly onto your neighbor’s property.
Defamation, Liability, and Slander
Umbrella insurance can provide coverage if you (or a member of your household) are involved in a lawsuit involving defamation, libel, slander, or other forms of “personal attack.” This coverage can be used to cover damages if you are found at fault, and may also be leveraged to pay for legal fees. Examples of legal events where umbrella insurance may kick in include:
- You write a negative online review for a restaurant or business and they sue you for liability.
- Your employer (or former employer) sues you for defamation after making false statements to potential customers or employees.
- Your child starts a rumor about a classmate that results in significant mental anguish.
What doesn’t umbrella insurance cover?
Because umbrella insurance is a form of liability insurance, it only covers expenses that you are deemed to be responsible for. This means that it typically won’t cover personal damages such as:
- Damage to your own personal property
- Personal or bodily injuries to yourself or a member of your household
- Liability that you take on by agreeing to a contract
- Liabilities that result from a criminal act or other intentional actions
- Liability that results from business activities
How does umbrella insurance work?
Umbrella insurance works pretty simply.
First, you’ll make the decision to purchase umbrella insurance on top of your homeowners insurance or auto insurance policy. Typically, you would do this because you feel that your base policy doesn’t provide enough coverage for your needs. You can purchase umbrella coverage from your existing insurer, or from a different carrier if you wish.
Once you have umbrella insurance, you have essentially purchased additional liability coverage. This means that if you are involved in an event (such as a car accident, slip and fall on your property, etc.) and deemed to be at fault, your umbrella policy can step in to fill any gaps left by your base insurance policy.
For example, imagine that your base auto insurance policy provides a maximum of $300,000 in liability coverage, but you are involved in an accident that causes $400,000 worth of damage. If you do not have umbrella insurance, you’d be responsible to make up the difference out of your own pocket. But with enough umbrella insurance, you’d be covered.
Who needs umbrella insurance?
Buying umbrella insurance can be a smart idea for anyone who is worried about the possibility of being sued. If you are unsure whether or not it makes sense for you, it can be a good idea to ask yourself the following questions that can help you gauge your personal level of risk:
- Do you own property that has the potential to do harm? Things like swimming pools, hot tubs or jacuzzis, trampolines, heavy lawn equipment or machinery, and firearms can all cause significant harm in an accident and may leave you liable for substantial claims.
- Do you own pets that can be considered dangerous? While we all want to believe that our dogs would never hurt anyone, the simple fact is that they are animals with animal instincts. If a small child wanders into your yard and startles your sleeping dog, it could lead to a bite—even in the most gentle of dogs.
- Do you have significant assets that you could lose in a lawsuit? Many high net worth individuals choose to purchase liability insurance to cover their savings or investment assets. This way, if they were to become the target of a lawsuit, the insurance is there to protect their savings.
- Do you have an inexperienced driver in your household? Young or otherwise inexperienced drivers are at a greater risk of getting into a car accident, which increases your liability risk.
- Are you a public figure? Anyone who is regularly in the public eye (such as politicians, businesspeople, celebrities, etc.) may find themselves at a greater risk of being targeted by a lawsuit, simply due to the fact that they are a familiar face. In this case, liability insurance can make sense.
- Do you lead youth activities? If you act as a coach, cub scout leader, mentor, or other leadership role for youth activities, it can be wise to purchase umbrella insurance to protect yourself in the event that a child gets injured while under your care. This can be especially true when contact sports or outdoor activities are involved.
- Do you regularly transport a large number of individuals in your vehicle? If you regularly transport others (as a soccer coach might drive their team to practice or games, etc.) umbrella insurance can help protect you in the event you are involved in an accident while others are in your vehicle. This is also true for those who participate in carpools or rideshare drivers.
- Do you regularly drive long-distance? The more time you spend on the road, the more likely you are to eventually be involved in an accident. Long-distance commuters who drive during rush hour traffic are especially at risk.
- Do you regularly host others at your home? If you like to throw parties or host gatherings on your property, umbrella insurance can help you protect yourself if someone gets injured while visiting you. This can also be helpful for individuals who rent out their property through a service or platform such as Airbnb.
It’s important to note that this list is by no means exhaustive. They are simply questions that you can use to understand how at risk you are for being sued. Other factors can also increase or decrease your risk, so it’s important to weigh your options carefully.
Do you have the right coverage?
Our licensed advisors are here to make it as easy as possible for homeowners and drivers to purchase the right insurance policy to put their minds at ease in an unpredictable world — including umbrella insurance.Schedule a Call