Once you have your basic insurance needs met, it’s time to double-check that your wealth is fully protected. Umbrella insurance gives you a cost-effective way to stretch your insurance limits high enough to cover all of your assets.
What is Umbrella Insurance?
Umbrella insurance is a special type of insurance that protects your existing insurance limits. It acts as an umbrella both over your other insurance policies and over your assets. For example, you lose a $1 million lawsuit after causing a serious car accident. Your car insurance liability limit was only $300,000. To pay the remaining $700,000 if you don’t have that much cash, you’d need to sell your retirement investments or your home. If that’s still not enough, the court may garnish your future income. But, if you had a $1 million umbrella insurance policy, there’s nothing for you to pay. The car insurance company pays the first $300,000, and the umbrella insurance company pays the difference.
What Do You Need to Buy Umbrella Insurance?
Because umbrella insurance is extra coverage, you can’t just buy umbrella insurance on its own. You first need to have home insurance and auto insurance with liability limits that are at least as high as the umbrella policy requires. This will usually be around $300,000 to $500,000. If you have a boat, you’ll probably need similar amounts of boat insurance as well.
Does Umbrella Insurance Ever Act as Primary Coverage?
Umbrella may act as primary coverage for certain types of lawsuits against you if the liability portion of your home insurance doesn’t cover them. This may include libel, slander, false arrest, and malicious prosecution.
What Else Does Umbrella Insurance Not Cover?
There are a few additional things umbrella insurance doesn’t cover. First, it’s important to understand that umbrella insurance is a liability coverage. It won’t cover your own property damage or medical bills. So, in a car accident that you caused, while the umbrella policy may pay the other driver, it wouldn’t pay you for your own medical expenses in excess of your other insurance policies even if you didn’t use up your full umbrella insurance limit.
Umbrella insurance also generally won’t cover criminal or intentional acts. Finally, if you want coverage for business activities, you need to use business insurance. You can buy an umbrella insurance policy for a business. Still, many people mistakenly believe their side gig would be covered by their personal umbrella insurance policy when it would likely be excluded.
What’s the Advantage of Umbrella Insurance Over Increasing Your Other Insurance Limits?
There are three advantages to umbrella insurance over increasing your other insurance limits.
- Umbrella insurance may allow you to obtain coverage that’s higher than the maximum limits on your other policies.
- Umbrella insurance may be more cost-effective than raising your other limits individually. Instead of paying extra on two or more policies, you’re only paying for a single policy.
- You may be covered for more types of incidents if your umbrella insurance acts as primary insurance for things your other policies don’t cover.
What’s the Difference Between Umbrella Insurance and Excess Liability Insurance?
Umbrella insurance may give you excess liability protection, but it’s not technically excess liability coverage. Excess liability coverage refers to protection you add to a specific insurance policy. For example, your home insurance company has a maximum liability limit of $1 million. They also allow you to add $1 million in excess liability coverage. That additional $1 million in excess liability coverage would not cover a claim for a car accident that exceeds your car insurance limits because it only applies to your home insurance. Excess liability insurance is more for situations where you have a specific need to increase only one liability policy. For general needs, umbrella insurance typically works out better.
Does Umbrella Insurance Have a Deductible?
Umbrella insurance doesn’t have a deductible. Your underlying home insurance or auto insurance effectively acts as your deductible since your umbrella insurance doesn’t kick in until you exhaust your other insurance. It’s also important to understand that umbrella insurance doesn’t pay your deductible on your other insurance, either. It pays for the part of the claim that’s above the limit for that policy.
Do You Have to Buy Umbrella Insurance From the Same Company?
You can buy umbrella insurance wherever you want to. If you have separate home and auto insurance companies, you could choose to use a third company for umbrella insurance. There’s generally no benefit to doing this other than that it might be the best way to get the coverage you need at the best rate. Of course, many insurance companies will offer discounts if you bundle multiple policies with them.
How Much Does Umbrella Insurance Cost?
Umbrella insurance is likely much less expensive than you’d think. While having millions of dollars in coverage may sound like it would cost a lot, the general rule is that the more coverage you add, the cheaper it is per dollar of coverage. That’s because larger claims, like a wrongful death accident, are much rarer than smaller claims, like a fender bender.
Talk to Your Insurance Agent
Your independent insurance agent can help you figure out how much insurance you need and if umbrella insurance is right for you. Sagen & Associates Insurance serves Kenosha, Brodhead, and the surrounding communities. Contact us today to request a quote or to get more information.