An umbrella policy picks up where the liability limits of your homeowners and auto policies leave off, and is an extremely cost-effective way to protect your hard-earned assets.
Do you own a dog? How about a trampoline? Do you have a long commute? If you answered yes to any of those questions, you have a greater than average chance of being sued. You’re also vulnerable if you have teen drivers at home, own more than one home, employ domestic staff, entertain regularly, are active on social media, coach a youth sports team, or serve on a nonprofit board.
Those risks aside, if you’re sued and found at fault for personal injury to others, your homeowners and auto insurance may not fully cover your liability. In 2016, half of personal injury liability awards and settlements were $100,000 or more; some 19% were $1 million or more, according to a recent edition of Current Award Trends in Personal Injury. If you get hit with a judgment, your home or auto policy will pay up to the limits of your liability coverage—plus attorneys’ fees. But if your insurance doesn’t cover the tab, your future earnings, home and other assets could be on the line for the difference. You can protect yourself with an umbrella policy, which adds another layer of liability protection.
What does an umbrella policy cover?
An umbrella policy typically covers the same things as your home and auto policies, plus a few more—including lawsuits that arise when you’re driving abroad or operating rented watercraft, or from alleged libel, slander or defamation of character.
What does an umbrella policy cost?
Umbrella coverage picks up where the liability limits of your homeowners and auto policies leave off. It’s usually sold in increments of $1 million (high-end carriers like Chubb will even go as high as $100 million). A policy typically costs about $300 a year for the first $1 million of coverage, and about $150 for every million after that, according to the Insurance Information Institute (III).
Before most insurers will sell you an umbrella policy, you must buy your homeowners or auto policy from them and carry a minimum amount of liability coverage—typically $300,000 on your homeowners policy and, on your auto insurance, $250,000 for bodily injury to one person and $500,000 per accident, says the III.
So, you may ask, why not just increase your home and auto liability coverage to the max? The answer is simple. It’s almost always more cost-effective to buy an umbrella policy than to increase your liability coverage beyond the minimum required by umbrella insurers.
If you buy your home and auto insurance from the same insurer, you’ll typically get a discount of 10% to 15% on your annual premiums, and you may get an additional discount on the umbrella policy. You can offset at least some of the umbrella premium by taking larger deductibles.
With a single insurer, your coverage is less likely to fall through the cracks if the requirements for the umbrella policy change. And if you’re sued, you’ll have one set of defense lawyers for the entire case. If you work with multiple carriers, it’s usually best to buy the umbrella policy from your auto insurer because most large lawsuits involve auto accidents.
The Bottom Line
For most auto and home owners, it’s difficult to overstate the importance of having umbrella coverage in place. An umbrella policy picks up where the liability limits of your homeowners and auto policies leave off, and is an extremely cost-effective way to protect your hard-earned assets.