You don’t have much choice about buying home insurance – your lender likely made it a condition of your mortgage. You don’t have much choice about buying auto insurance – every state but one requires you have liability insurance, some require uninsured/underinsured motorist coverage, and your lender will mandate that you have collision and comprehensive coverage. Health insurance? There’s that new federal law you may have heard about. Life insurance? Your family’s future is at stake.
But you do have a choice about buying an umbrella insurance policy – even if you don’t know what the term means.
Umbrella insurance doesn’t protect you if a strong wind gust rips your umbrella from your hands in a downpour or if you leave yours in a bar on St. Patrick’s Day. The umbrella in the term refers to the broad liability coverage the policy offers.
What is umbrella coverage?
A personal umbrella policy kicks in when other personal liability coverage leaves off. Confusing? Consider these examples:
- A salesman comes to your door. You’re not interested in what he’s peddling, but before you can slam the door in his face your dog escapes and bites the salesman, causing him to fall down the steps and break his leg. You could liable for the dog bite – the average claim was for $29,752, according to a 2013 Insurance Information Institute stud. Then there’s the broken leg – figure at least $7,500. Now consider the salesman will be out of work for possibly six weeks – maybe more. You could be responsible for replacing his lost sales. Pain and suffering? Who knows how much a jury could decide? You could quickly blow through the liability coverage that’s typically part of a standard home insurance policy.
- You get distracted on the way to work and turn in front of an oncoming vehicle, causing a three-car smashup. Your injuries are minor, but two people are hurt in each of the other vehicles, and both cars suffer substantial damage. Again, you can blow through your auto liability coverage pretty quickly, and if you’re sued for more than that amount, you’re responsible for the difference.
How would umbrella coverage help?
In the above examples, your umbrella coverage would take over when the other liability coverages were exhausted, protecting your personal finances up to the limits of the umbrella policy. Umbrella policies typically start with $1 million coverage limits and increase in increments of $1 million.
Many umbrella policies also cover situations not protected under homeowners or auto policies. Among those are lawsuits for slander, libel, and false arrest.
How much does umbrella coverage cost?
That’s a difficult question to address. Most providers require you to purchase at least $300,000 worth of liability protection in your home and auto policies before you’re eligible to buy an umbrella policy. The actual cost of the umbrella coverage often starts at as little as $200 for the first $1 million of coverage, but it varies by provider.
The better question is: What could it cost you if you don’t have an umbrella policy? In the end, it’s your choice whether to buy extra liability coverage. But in today’s litigious society, is going without it a gamble you’re comfortable taking?