Reasons to Consider an Umbrella Insurance Policy

Consumers with auto and homeowner’s insurance policies have liability coverage in the event of someone else becoming injured on your property and taking legal action to recover damages. However, when you start to accumulate assets totaling seven figures or more, it goes beyond the limits of your liability coverage. This means if someone sues for more than those limits, your assets may be at risk.

Umbrella insurance is available to help bridge the gap between the liability limits on your standard homeowner’s and auto policies and your assets.

How does an umbrella policy work? An umbrella insurance policy provides an additional layer of liability protection beyond the limits of your other policies. Typically, an auto or homeowner policy may have liability limits of $100,000 up to $500,000. If an incident occurs with damages that exceed these limits, the umbrella insurance automatically kicks in.

With most insurers, you may purchase umbrella coverage in $1 million increments and choose the limits that best suit your needs and budget. Annual premiums are relatively low, usually a few hundred dollars a year for $1 million of coverage.

Umbrella insurance protects more than just incidents involving your car and home. Other areas of coverage may include:

• Vehicles other than automobiles, such as RVs, boats, jet skis, and motorcycles.
• Extended business liability coverage (if already part of your homeowner policy).
• Incidents where you are accused of libel, slander, defamation of character, etc.

Why you might need umbrella insurance: An umbrella policy can come in handy in a number of scenarios. For example, if you own rental properties, it is difficult to predict the behavior of your tenants. In cases where you are renting out a condo or townhome with community property, there is always a danger of your tenants causing damage to common areas. Rental property owners should definitely look into umbrella insurance.

Another example is having young drivers in the family. As a general rule, teenage drivers are not known for having good judgment. If one of your kids should cause a serious accident, you are the one that will be responsible for the damage.

Umbrella insurance is not for everyone. If you have limited financial assets and very little property at risk of exposure, the limits on your regular auto and homeowner’s/renter’s policies may be sufficient. For those with a fair amount of assets to protect, the relative affordability of an annual policy makes it worthy of serious consideration.

Speak with your insurance broker to find out if an umbrella policy may be right for you.