You already know that your state requires you to carry auto insurance, and you probably know about the basics of liability insurance as well. You need this coverage to legally drive, and it can prove invaluable if you’re in an accident or similar event. But what happens if your auto insurance isn’t enough to cover the costs that you incur?
An umbrella insurance policy is an option for you if you feel your assets are worth more than your insurance will cover. In this guide, we’ll take a look at what umbrella insurance is and whether it’s a good idea for you. It’s not for everyone, but in certain circumstances, an umbrella insurance policy could be worth its weight in gold.
What is Umbrella Insurance?
Umbrella insurance is a type of coverage that can protect you if your auto insurance, homeowners insurance, or other policy isn’t sufficient to pay your bills. For the sake of this article, we’ll look primarily at how this coverage can step in to supplement your auto insurance coverage.
Imagine for instance that you’re involved in a car accident. The roadways are icy, and you lose control of your vehicle. It happens to the best of us and is very common in colder climates. Unfortunately, luck isn’t on your side this time around and your little accident causes six cars behind you to also lose control and suffer damages.
Your insurance policy’s limits will be too low to cover each of the seven vehicles involved. But your umbrella insurance policy can help cover the costs incurred, going above and beyond what your primary auto insurance policy will cover.
In another example, assume your teenager borrows your car. While backing out of your driveway, they accidentally hit the neighbor’s dog. The neighbors sue you for the veterinary care of their pet, but animals aren’t covered under your auto insurance, and so you’re out of pocket. Or at least, you would be if you didn’t have the extra liability coverage provide by your umbrella insurance.
As you can see, there are quite a few scenarios that may warrant umbrella insurance. This coverage provides protection and peace of mind under the most unpredictable of circumstances. After all, that’s what insurance is all about!
Do I Need Umbrella Insurance Cover on my Policy?
When considering whether you need to purchase umbrella insurance, the first thing you should do is take a look at your assets. If the value of what you own exceeds the limits of your car, home, renters, or other insurance, then an umbrella insurance policy may be a good idea.
However, remember that umbrella insurance doesn’t just cover your assets. It also can protect you in the event that you’re sued. And in the world we live in, you can be sued for just about anything.
- Your daughter brings a peanut butter and jelly sandwich to school and a classmate has an allergic reaction. You’re sued for the medical costs.
- Your dog bites a runner on the street. You’re sued for medical costs, pain and suffering, and a battery of other offenses.
- You own a rental unit in Arizona. One of your tenants is bitten by a scorpion while walking on the property. Yes, you can be sued. Umbrella insurance can cover you.
- A neighborhood kid constantly uses your yard as a path home. A tree limb falls and the child is injured. You can be sued, even if you weren’t aware the child was on your property.
We’re a very litigious nation, and the extra liability coverage provided by umbrella insurance will protect you against the worst of it.
The value of the assets you own and the likelihood you’ll be sued are the two primary factors to consider when deciding for or against umbrella insurance.
How Much Does Umbrella Insurance Cost?
Surprisingly, and despite its broad coverage and international protection, umbrella insurance is relatively affordable. The insurance is usually sold in increments of $1 million, but this could vary by state and other factors.
You can expect to pay around $350 each year for your first million of coverage. After that, additional millions will run around $100 each. Your insurance agent can help you determine the coverage that’s best for you. If necessary, you can also enlist an appraiser to help calculate the value of your assets.
Overall, at around $30 per month, umbrella insurance might be a good option for you. If you need more coverage than that initial million, the cost is only slightly more. Evaluate the worth of your assets and calculate how much insurance you’ll need. If you’ll pay 10% or less of that value for your premiums, umbrella insurance might be a good fit for you.
Conclusion: Umbrella Insurance Policy
Your homeowners insurance, renters insurance, and auto insurance may be the best of the best, but in the event of an unexpected lawsuit or accident, the coverage they provide may not be enough. Speak with your financial advisor and an insurance agent to determine if an umbrella policy is right for you.