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Why Do I Need A Personal Umbrella Policy?

If you’re worried that your insurance isn’t enough to keep you covered, look into a personal umbrella policy. Umbrella policies help pay for extra fees that exceed your standard insurance plan. 

What Is A Personal Umbrella Policy?

Personal umbrella policies step in where your regular insurance stops. Most insurance plans come with a cap on how much they’ll cover. If you buy a $300,000 home insurance policy, your provider will pay up to $300,000. But if your claim ends up costing more than that, you’ll end up paying out-of-pocket.

A personal umbrella policy works like a second insurance: paying for unexpected costs that can come with liability claims. What kind of liability claims? Well, suppose you’re found at fault for a car accident and need to pay for someone else’s medical bills—which we all know can get pretty pricey. If those medical bills exceed your car insurance’s limit, that’s where umbrella insurance comes in.

What’s Covered by a Personal Umbrella Policy?

Umbrella policies cover claims that exceed the cost of your existing insurance. If you need to pay $500,000 to pay for someone else’s medical bills, you don’t need to worry about only having a $300,000 policy. Your umbrella coverage will make up the difference.

Liability Claims

Generally, personal umbrella policies are added to homeowner and auto insurance. These kinds of policies are the most likely to have liability claims—car crashes, household accidents, pet-caused injuries, etc. Umbrella coverage will pay for legal fees, the injured party’s medical costs, or property damage. If you rent out a property, your coverage can also cover cases of landlord liability. 

Family Extensions

One of the benefits of umbrella plans is that they extend to other members of your household. That means your plan doesn’t just cover you, but also your spouse and children living inside your home. Check the fine print on your plan to see who else is included in your “household” coverage.

Other Hazards

Umbrella policies can also be applied in some civil suits. If you’re entangled in a civil case, your umbrella policy can protect you from malicious prosecution. (Malicious prosecution is when someone sues you without probable cause or because of improper reasons.) You can also receive extra coverage for wrongful entry cases or invasion of privacy.

What’s Not Covered by a Personal Umbrella Policy?

Personal property damage or replacement

In liability cases, umbrella coverage pays for damages to other people’s property. Unfortunately, this means an umbrella policy does not usually cover your property. But you can insure your property through your standard policy or through an insurance rider. (Insurance riders are add-ons to your policy that provide extra coverage.)

Business damages or losses

Like with personal property, damages or losses from a business cannot be covered by an umbrella policy. This applies even if the business is based out of the policyholder’s home.

Contract violations

If a liability claim is filed because the policyholder fails to fulfill a legal contract, their personal umbrella policy will not kick in. All damages, losses, legal fees, etc.. will need to be paid by the policyholder.

Intentional criminal actions

If someone is found in a court of law to have intentionally committed a crime, they’re on their own. Providers are not expected to provide for policyholders if they’ve been convicted.

Personal Umbrella Policy vs Excess Liability Coverage

Though some people may swap out these two terms, they are technically different types of coverage. Unlike umbrella policies, excess liability coverage doesn’t cover libel or slander (defamation coverage). It also isn’t offered by every provider, so you might need to spend more time looking for coverage.

How Much Does A Personal Umbrella Policy Cost?

Policies prices hinge on three main points: what state you live in, the value of your policy, and your perceived “risk” to the insurance company.

For most states, a $1 million policy will cost around $150 – $300 yearly. A policy worth $2 million will cost about $75 more. For every million after that, you’ll spend $50 extra each year. However, these policies expect you to have decently-sized standard plans in place. Umbrella policyholders should have a $250,000 auto policy and/or about a $300,000 home policy. If your existing coverage isn’t this high, you’re going to have to pay much more for your umbrella policy. 

Part of the reason why umbrella policies are so cheap is that they work as add-ons to an existing policy. If you have a lower policy, you’re going to be seen as a higher (and more expensive) risk to your umbrella provider.

Do I Need a Personal Umbrella Policy?

Before deciding on an umbrella policy, you’ll need to look closely at your own situation. Here are a few questions you should ask yourself:

How much is my home/car/business worth? Do they exceed the worth of my standard policy?

Am I at a higher risk of being sued? Do I own a business or rent property? Am I a well-known public figure?

Does my household have other risks? Is there a teenager driving my car? Do I own a dog? Does my home have a swimming pool, hot tub, or trampoline? 

How much liability coverage does my standard plan cover? Is there a risk of legal or medical costs exceeding that amount?

Can that risk be covered by a rider or add-on (like excess liability coverage)?

If I bundle my umbrella and standard coverage, can I get a discount?

We never know what the future holds. If you’re concerned about the limits of your current plan, look into umbrella coverage. You can research plans online through sites like Versured, which allow you to compare prices and quotes from different companies.

Key Takeaways:

  • Personal umbrella policies cover extra insurance costs. They don’t replace your standard plan, but will kick in once costs exceed your existing policy’s limit. 
  • Umbrella policies generally pay for extra costs that come with liability cases—when you’re sued or need to pay for someone else’s medical or legal fees.
  • Umbrella policies don’t cover every single cost that exceeds your policy’s limit. If you lose personal property or are found at fault in a criminal case, you might still end up paying out of your own pocket. Check the policy to see what’s covered before buying.
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