What is Umbrella Insurance?

Umbrella insurance is an extra layer of liability insurance that can pay for medical, legal, or other costs once the coverages from your basic homeowner’s and auto insurance policies are exhausted.  In addition, it can also provide coverage for claims that are excluded by the primary policies.  Coverage levels generally start at $1 Million and are sold in increments of $1 Million.

Who Needs Umbrella Insurance?

In general, those who need umbrella insurance typically have assets that they wish to protect, and/or face the risk of lawsuits.

Individuals and families with assets such as homes, investment accounts, jewelry, checking and savings accounts, and other financial and personal assets can use umbrella insurance to protect these assets.  If your assets are greater than your current insurance liability limits, you should consider umbrella insurance.  Determine this by listing an inventory of all of your assets and their respective values and subtracting out your liabilities.  Compare the result to your auto and homeowner’s insurance coverages to determine your amount of uninsured assets.

Those at risk of lawsuits should consider umbrella insurance.  Fact is, the frequency of lawsuits in the U.S. has increased dramatically over the past several years, and normal activities expose you to potential lawsuits every day.  Just a few of the factors that increase the likelihood of lawsuits include owning vacation or rental properties, participating in volunteer activities, having a swimming pool at your home, being financially responsible for a  teenaged driver, and frequently hosting guests at your home.

Shopping for Umbrella Insurance

In most cases umbrella insurance is quite affordable.  Typically this coverage is added onto current auto and homeowner’s coverage using the same insurance provider.   In fact, most insurers require keeping the policies together (under one provider).   You should compare the premiums and coverages for these policies with several different insurance companies before making the decision to purchase umbrella insurance.

Note that most insurers require a minimum amount of liability coverage on a policyholder’s auto and homeowner’s insurance before they will issue an umbrella policy.  If your current coverage doesn’t meet those minimums, you may have to raise your them in order to purchase the umbrella insurance.