Once you buy insurance for your car and your house, you might think you’re done. You’re covered if something goes wrong, right?
But you may find that in a terrible-case scenario, you could find yourself needing more insurance coverage than one of those policies can provide. That’s when an umbrella policy can come in handy.
And while it’s not necessary for everyone, it’s not only for the rich and famous.
Who should consider an umbrella policy
A few situations that might make you want to consider having additional liability coverage:
- Having a pool, hot tub or trampoline on your property
- Owning a boat, jet ski, or off-road vehicle
- Owning a dog breed that may be considered “dangerous”
- Owning rental properties
- Being in the public eye due to your job or an activity
“You might assess the need for an umbrella policy based on your assets,” said Fabio Faschi, property and casualty team lead at insurance comparison site Policygenius. “But the truth is that you could get sued for well beyond the value of your assets.” He said a more useful metric for determining how much coverage you need is your exposure.
If you’re prone to liability because you have a business, that’s going to be covered by business-specific liability insurance. But you could find personal umbrella coverage helpful if you have a high-profile day job or find your video blog going viral, for instance.
“I always tell clients to get an umbrella if they can afford it,” said Chris Monge, owner of Affordable Insurance Solutions in Waunakee, Wisconsin.
Monge provided a scenario of someone running a red light and hitting a car carrying four people. Everyone in that car gets hurt. If your car insurance liability limit for bodily injury is $250,000 per person and $500,000 per accident, you’re likely to hit the limit of what your insurance company will pay those other passengers—and still be dealing with a medical expenses or a lawsuit from the injured passengers.
Two ways to get umbrella coverage
There are two ways you can get umbrella-style coverage. The first is with excess liability coverage, which is more common. You buy coverage to layer over existing home or auto coverage in the event that you exceed your coverage on those policies.
Or you can get a true umbrella policy, which stands on its own and doesn’t require you to have home or auto coverage already. A situation where you might do this is if you don’t have a vehicle and don’t have renter’s insurance. (Imagine for a moment you retired early and travel around the world and don’t keep an apartment to insure in the U.S.)
Standalone umbrella insurance is likely to be more expensive, but it may be your best option if for some reason you can’t get a policy through an existing carrier. If you’ve had three car accidents in the last year, for example, maybe your insurer isn’t going to be thrilled about extending more coverage to you.
What does it cost?
Your umbrella insurance cost will depend on where you live, what you’re insuring (or covering over existing insurance), and your insurance history. Coverage starts at $1 million and usually increases in increments of a million. For $1 million umbrella coverage, you might pay anywhere between $80 and $300 per year.
The best place to start shopping for umbrella coverage is with your home or auto insurance carrier. Make sure you won’t have to pay “self-insured retention,” which is a deductible, Monge said. While it’s more common to see that stipulation for business policies, it can show up on personal ones as well. And it’s more likely for standalone policies you get outside your existing insurance provider.
If you have unique assets like a jet ski or other adventure item, make sure the quotes you get reflect the appropriate amount of coverage for that specific item. An insurance agent can help you figure that out.
But do you really need it?
While there are a lot of factors involved in determining how much risk you personally want to take, one thing is certain: If you haven’t maxed out your coverage for your home or auto policy, it makes no sense to try to get excess liability coverage on top of those policies. If your auto insurance company offers maximum liability coverage of $500,000 per accident, but you’re only paying for $300,000 of coverage per accident, many carriers won’t let you buy excess coverage until you increase your standard coverage to the highest level, said Faschi.
So if you’re looking for more coverage but haven’t maxed out what’s possible through your existing policy, Faschi and Monge agreed to start there to increase your coverage. If you’re in good standing with your carrier, the higher amount you’ll pay for the additional coverage on your standard policy will still be lower than paying for an extra $1 million umbrella coverage.