How umbrella policies can benefit you

By Insurance.com Posted : 09/20/2014

You don't have to be rich to get sued.

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Umbrella policies put extra cushion to both your homeowners and car insurance policies, standing between your assets and the liability you assume when you or one of your dependents cause damage greater than your coverage limits.

"Umbrella liability polices are dirt-cheap," says Des Toups, Insurance.com managing editor. "If your home equity and savings exceed the liability limits on your homeowners or auto insurance policies, you can protect them for a few hundred dollars a year. And you should."

Who needs an umbrella policy?

Like when it comes to considering purchasing any type of insurance, be sure to evaluate what assets you want covered and what the likelihood of you getting sued is. It may be more cost-effective to raise your liability limits with your homeowners insurance, rather than buying an umbrella policy. Also, by raising your deductible, you may ultimately pay less for your premium than you had originally been paying. No matter, with the commonality of million-dollar settlement verdicts, an umbrella policy may be the best way to go.

For example, if you own a swimming pool, hot tub, trampoline, swing set, or even pets, it would be a good idea to consider getting an umbrella policy. If you don't regularly have people over, and your pooch couldn't hurt a fly, it may not be that important. However, if you generally have guests over and your dog tends to snap or bite people, then purchasing an umbrella policy might be a wise idea.

What does a personal liability umbrella policy protect?

When you buy a personal liability umbrella policy, you are buying a broader insurance coverage range with higher liability limits. Primary policies generally cover bodily injury and property damage, but with personal liability umbrella policy coverage, you can include personal injury, property damage or bodily injury caused by you, your pets or your dependents. Along with a personal injury protection, you may be covered in the unfortunate event of:

  • False arrest
  • False imprisonment
  • Defamation
  • Invasion of privacy
  • Malicious prosecution
  • Eviction
  • Wrongful entry

 

Some umbrella policies go as far as giving you coverage if you're charged liability while actively participating on the board of a charitable, religious or civic organization. It's important to realize that even if the lawsuit is frivolous or silly, you will still need to pay the expenses for defending yourself.

How much does umbrella insurance cost?

Typically, you'll pay around $150 to $300 annually for $1 million in umbrella coverage, according to the Insurance Information Institute (III). While $1 million is the standard minimum for an umbrella policy, you also can opt for larger amounts of coverage in million-dollar increments.

To be eligible for umbrella coverage, you'll also need to meet minimum coverage requirements on your other policies – typically, $250,000 of auto liability coverage and $300,000 on your home insurance policy, according to III.

You may not need umbrella insurance if you have no assets worth taking or you have enough savings to replace the coverage amount. For everyone else, however, an umbrella policy can provide an extra layer of protection against the worst-case scenario. (See "How much umbrella insurance should you have?")

When umbrella policies go to work

After your liability insurance in your homeowners or car policies has run out, umbrella polices will kick in.

They cover the amount above what your homeowners or car insurance policies capped out, up to the limit you selected. Many companies will only issue you an umbrella policy if you have both your car and homeowners insurance with them.

The reason that most umbrella policies are so inexpensive is that the policy is just added protection. If you are sued, the bulk of the cost is taken from your homeowners or car insurance, then the rest falls on the umbrella.

Umbrella policy exceptions

Umbrella policies vary from state to state, so depending on where you live, your umbrella coverage may not cover you for everything and anything you may be sued for. For example, many policies won't pay for punitive damages-which are generally used to punish people for their conduct. Intentional acts are another that may not be covered by an umbrella policy, as well as if a claim comes from a business endeavor.

There are always exclusions and loopholes when it comes to umbrella policies, so be sure to talk with your insurance agent and fully understand what your coverage entails.

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