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What You Need to Know About Umbrella Insurance

Umbrella insurance can help in situations where you need additional coverage - and those situations are more common than you might think.

Imagine this: You finally give in to your daughter’s pleas for a backyard trampoline. Less than three months after it’s erected, a neighbor boy breaks his leg while jumping on it, requiring liable? surgery. His parents sue you for their son’s unpaid medical bills, pain and suffering. Are you

The answer is likely, “yes.” While it might not have been your child who was hurt, the accident happened on your property meaning you could be on the hook for the damages. This is an example of where umbrella insurance could come in handy.

What is umbrella insurance?

Umbrella insurance is a personal liability insurance that offers an additional layer of protection when your homeowner’s or auto insurance isn’t enough to cover a claim made against you. It comes into play when the limits of your other policies’ limits are exhausted.

What does umbrella insurance cover?

Umbrella policies cover others’ injuries and property damage, liability claims such as libel, slander and false imprisonment and your legal defense should you need to go to court. They also cover malicious prosecution, wrongful entry, invasion of privacy and other hazards.

And your policy covers more than just you, the policyholder—it can also include other members of your family or household. Also, incidents don’t have to involve your property or vehicle to be covered. You are covered worldwide, except for homes or vehicles purchased and operated under the law in other countries.

What doesn’t umbrella insurance cover?

An umbrella policy does not cover damage to your personal property, your personal injuries, intentional or criminal acts, liability incurred in business or professional activities, liability related to war or armed conflicts or liability you agreed to assume under a contract you signed.

How does umbrella insurance work?

In the instance of the trampoline incident, let’s say your homeowner’s insurance provides coverage for trampolines and has a personal liability limit of $100,000. Your neighbor sues and the court awards them a judgment of $500,000. The judgment is $400,000 higher than your liability limit and you would have to pay the $400,000 out of pocket.

If you have $1 million in umbrella insurance, your policy would cover the portion of the judgment not covered by your homeowner’s insurance. Attorney’s fees and lawsuit-related expenses would also be covered in addition to the $1 million.

Do I need to buy umbrella insurance?

It’s certainly a personal decision but considering what could happen if you don’t have that extra layer of protection, it might be a good idea. Of course, there are some who need umbrella insurance more than others. Those who own property that is leased or rented or employ household staff, own a hot tub, pool, trampoline or gun, someone who hosts large parties or a well-known public figure could put you at a higher risk of liability. Teenage drivers also put a family in the higher risk category, along with dogs.

How much umbrella insurance do I need?

A good rule of thumb is to buy enough to cover the total value of your assets—including checking, savings, retirement and investment accounts and home equity—that exceeds the limits of your home or auto liability. In short, you’ll want enough liability insurance to cover any/all assets you could potentially lose in a lawsuit.  

How much does umbrella insurance cost?

Umbrella insurance is typically sold in increments of $1 million and ranges in price from $150-$300 per million, according to the Insurance Information Institute.

Is umbrella insurance worth it?

Absolutely! Accidents happen all the time, everywhere, and many people can’t afford to cover thousands in damages they hadn’t planned for. With its high coverage limit, umbrella insurance is typically considered a good investment.

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