When accidents happen, umbrella insurance can provide an added layer of security to your existing home or auto policy. Read on to learn more about what umbrella insurance is, what it covers, and who can benefit from this type of coverage.
What is umbrella insurance and how does it work?
Umbrella insurance is a type of supplemental liability insurance coverage that helps cover claims that are larger than the coverage limit on your existing insurance, including injuries, property damage, or other personal liability scenarios.
An umbrella policy can extend liability coverage for various insurance policies, including:
"Personal policies such as your auto or homeowners’ insurance provide a first line of defense for injury or property damage to others that is caused by you, but these policies come with limits that can be exhausted in certain situations—meaning you may end up paying out of pocket,” says Wesley Jenq, FCAS, Senior Product Development Manager at Grange. “An umbrella policy can offer additional coverage to further protect your assets.”
For example, let’s say you’re responsible for a multiple-car accident and sued for $700,000 in vehicle damage and medical bills. If your auto insurance has a liability limit of $300,000, an umbrella policy would kick in to cover the additional liability costs beyond the limit of your car insurance, covering the lawsuit expenses and saving $400,000 in out-of-pocket charges.
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What does (and doesn’t) umbrella insurance cover?
"Umbrella insurance extends the amount of coverage for all eligible underlying insurance policies—if underlying policies’ limits are exhausted, the umbrella policy kicks in,” Jenq says.
It can also provide coverage for liability claims or scenarios that are excluded from your other insurance policies. This can include:
- Property damage
- Injuries
- Personal liability claims, such as libel, slander, or false imprisonment
- Legal fees
"Scenarios where umbrella coverage applies often involve severe injuries, such as those that lead to permanent loss of income or potentially lifelong disability,” Jenq says. “Obviously no one plans for events like this, but accidents can happen to anyone.”
There are certain types of liability that a personal umbrella policy won’t cover. This can include:
- Liability sustained in business or professional activities. Consider business liability insurance to cover any incidents related to injuries or damages in the workplace.
- Willful property damage or other harm. Umbrella coverage won’t cover any damage you or a member of your household may have caused on purpose.
- Damage to your property. Since this is a liability policy, it will only cover you if you’re held responsible for damage to someone else’s property.
Jenq adds that umbrella policies generally only cover events that your underlying policies cover, so be sure to check your existing home or auto policies to ensure that they meet your needs.
Who needs umbrella coverage?
Home or property owners who are exposed to higher risks, have significant assets to protect, or who engage in sports or other hobbies where there is high risk for injury should consider umbrella insurance, since they are more susceptible to higher claims or to being sued.
These higher risks can include:
- Owning a trampoline or swimming pool
- Owning rental property
- Coaching kids’ sports
- Owning a dog or other animals
- Engaging in sports that could injure others (skiing, hunting, etc.)
Insurance companies have different risk appetites, and some may not insure or extend umbrella coverage to higher risk individuals. An independent insurance agent can help you find the best fit.
Even having lower risk doesn’t mean you have no risk. “Responsible drivers, homeowners, and landlords can benefit from the additional coverage for a reasonable premium to protect themselves from unexpected and potentially disastrous events,” Jenq says.
How much does it cost?
The price of your umbrella policy depends on the amount of coverage you purchase, the state you live in and the risk you represent to the insurance carrier. In general, the more cars, homes, or household members your policy covers, the higher your risk and the more you’ll pay for your policy.
"Umbrella policies often represent a great value when compared to the broad and generous coverage offered,” Jenq says.
A typical customer—for example, someone who is only looking for additional coverage over their home and auto policy with a few vehicles—may be able to purchase umbrella coverage for as little as $1-2 per day, or $400-$500 annually. Adding umbrella insurance to your bundled home and auto policy can sometimes be more affordable.
Certain factors that increase your potential liability may also impact the cost of an umbrella policy. This can include:
- Driving violations and accidents
- Youthful drivers in the household
- Exposure to boats or motorcycles
Keep in mind that an umbrella policy only pays out after your underlying coverage is exhausted, and some insurers may require higher than average liability limits on home and auto policies in order to add on umbrella insurance. So, while an umbrella policy may be affordable on its own, you’ll need to consider any additional premium on your auto or home insurance you’ll owe when maxing out your liability first.
The bottom line
While it’s unlikely you’ll find yourself on the hook for a large settlement or a serious accident, accidents can still happen. Umbrella insurance could be the extra coverage you need to help give you peace of mind and protect you from significant financial loss. Talk to your independent agent or find an agent near you to explore options that best suit your needs.
References:
- Investopedia
- Insurance Information Institute
Coverages described herein may not be available in all states. Please contact a local independent Grange agent for complete details on coverages and discounts. If the policy coverage descriptions herein conflict with the language in the policy, the language in the policy applies. The material provided above is for informational, educational, or suggestion purposes and does not imply coverage. WE RESERVE THE RIGHT TO REFUSE TO QUOTE ANY INDIVIDUAL PREMIUM RATE FOR THE INSURANCE HEREIN ADVERTISED. Grange Insurance policies are underwritten by Grange Insurance Company, Trustgard Insurance Company, Grange Indemnity Insurance Company, Grange Insurance Company of Michigan and Grange Property & Casualty Insurance Company*. Not all companies are licensed in all states. *Not licensed in Pennsylvania.