Just like an umbrella protects you from rain, an umbrella insurance policy is extra coverage if youâ€™re at risk for being sued for damages to other peopleâ€™s property or injuries caused to others in an accident.
An umbrella policy also protects against libel, vandalism, slander and invasion of property. This kind of coverage is beneficial if youâ€™re sued and the settlement amount of your base auto or homeowner policy is exhausted. An umbrella policy can literally protect you from financial ruin in the worst case scenario.
Although not for everyone, an umbrella policy, often called â€œexcess liability insurance,â€ is recommended for people who own a lot of assets, or own some very expensive assets, and are at significant risk of being sued. People who can possibly benefit from an umbrella policy are those who own property, have significant savings, or own property that can cause injury â€“ pool, motorcycle or other recreational vehicle, boat, airplane, trampoline, exercise equipment, dog, etc.
How Umbrella Insurance Works
Umbrella insurance pays settlements up to stated amounts for the following types of lawsuits: treatment for othersâ€™ injuries or funerals; property damage to others; lawsuits involving libel, slander, defamation of character or other personal attacks; injuries or property damage suffered by tenants if you own rental property; and your legal defense costs.
Insurance carriers typically sell umbrella policies in $1 million increments. The least expensive policy offers up to $1 million in coverage; the next level offers $2 million in coverage, etc. In order to qualify for umbrella coverage, you must own auto insurance or property insurance.
How Much Umbrella Coverage Do You Need?
Youâ€™ll want to cover at least your net worth, including your savings, assets and income, in order to avoid financial ruin in the case of a lawsuit. If you expect your income to rise considerably, purchase enough umbrella coverage to account for future earnings.
Youâ€™ll also want to explore the maximum coverage limit a company offers. Most policies stop at $5 million in liability protection, but some offer higher coverage. Pay special attention to any types of activities that may be excluded from umbrella coverage. For example, injuries to others resulting from certain recreational vehicles or extreme sports activities may be excluded. So read the fine points and ask questions to clarify your coverage.
Whatâ€™s the Cost?
You can buy a $1 million umbrella liability policy for about $150 to $300 per year. Of course, youâ€™ll need to talk to your SelectQuote licensed agent for an accurate quote for your circumstances. Costs per million drop after that, with the second million costing about $75 per year; and about $50 per year for every additional million in coverage. You may save on premiums if you bundle auto, property and umbrella coverage with the same carrier.
Keep in mind the umbrella policy goes into effect only after the initial underlying coverage is exhausted. Therefore, most insurance carriers require that you have a minimum amount of coverage on your base policy â€“ generally about $250,000 on your auto; and $300,000 on your homeowner policy.
Is an Umbrella Policy Worth It?
Considering the prevalence of personal lawsuits in the U.S., an extra investment in liability coverage can buy you considerable peace of mind at an affordable rate, if you believe you may be at risk.
Your best chance of getting a solid umbrella insurance policy is to work with a licensed insurance agent who can shop various companies to find you the best policy at the best price.
SelectQuote agents work with dozens of insurance companies and are helpful at finding umbrella policies. Discuss your needs and concerns with a licensed SelectQuote insurance agent today.
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