Do You Need Umbrella Insurance?

by Miranda Marquit

When it comes to protecting your assets, you probably know that you need insurance. There are different insurance policies available, designed to protect your assets in a number of situations. Most policies include some kind of liability coverage. From auto insurance, to homeowner’s insurance, you want to protect yourself in the even that someone is hurt and you are found at fault. The liability coverage with these policies pays for injuries to others, and can even provide protection if you are sued.

But what happens if you reach your limit of liability coverage with your other insurance policies? What happens then? You don’t want to have to pay out of pocket, so it makes sense to have extra coverage. This is where umbrella insurance comes in.

What is Umbrella Insurance?

Do you need umbrella insurance?

Do you need umbrella insurance?

The point of umbrella insurance is to provide you with extra liability coverage. Most umbrella policies are for between $1 million and $5 million of coverage. Realize, too, that this coverage doesn’t take effect until after your other coverages have been exhausted. So, if you are in a car accident, and you have $500,000 of liability coverage on your policy, your umbrella policy wouldn’t pay out until after the $500,000 was taken care of. If you have $2 million in umbrella coverage, and the person who you hit settles for $1.5 million, the first $500,000 is covered by your auto policy. The remaining $1 million is covered by the umbrella policy.

Umbrella coverage is designed to provide an extra layer of protection in liability cases. It’s possible to buy policies that include, home, auto, watercraft, motorcycle, and other situations. Talk to your insurance agent about the possibilities, and make sure you are clear about what you want covered. Business umbrella/liability insurance will probably need to be purchases separately, and you should check into a home business endorsement if you want protection for your home business.

How Much Will You Pay for Umbrella Insurance?

The cost for umbrella insurance varies, according to different factors, including how much coverage you want. One of the common policy costs is about $150 a year, plus $50 for every additional $1 million in coverage. You can actually get $10 million or more in coverage, if you are willing to pay for it.

Many insurance companies can add umbrella insurance to your package, and the policy is added to your current premiums. If you are worried about paying the umbrella insurance premium, it’s usually possible to increase your homeowner’s deductible, or some other deductible, in order to drop your regular premium to offset the cost of the umbrella insurance.

Who Should Buy Umbrella Insurance?

If are concerned about protecting your assets, umbrella insurance might be right for you. Consider your financial situation. Do you have a large amount of assets? Are there risks to you from the possibility of someone getting hurt on your property? Many people with trampolines or pools choose to buy umbrella insurance because of the increased chance of injury. Someone who is known for wealth might also want umbrella insurance, since more assets can sometimes be an incentive for others to sue. Carefully consider your financial situation, and decide whether umbrella insurance makes sense for you.

Photo credit: Helga Weber

Published or updated May 24, 2012.
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{ 3 comments… read them below or add one }

1 Cherleen @ Barbara Friedberg Personal Finance

At one point in our life, we also considered purchasing umbrella insurance for our home and car. However, after weighing the pros and cons, we decided to purchase them separately from different insurance companies. We did not only saved money but there were also more benefits.


2 Get Rich Point

This “umbrella insurance” sounds good. May be I will give it a try later on, but not now.


3 Eric

Before you get an umbrella make sure the limits on your primary policies are all maxed out. Most carriers will go up to $500,000.



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