With a little due diligence, you can find a reliable policy that’s right for you
Key takeaways:
- Umbrella insurance provides additional protection from claims and legal liability beyond what standard personal insurance policies offer.
- This coverage may be necessary to protect your assets, with most umbrella policies providing at least $1 million in additional coverage.
- In addition to choosing appropriate coverage limits, policy holders should understand common exclusions and ensure a specific provider and policy meets their needs.
Insurance is likely already a part of your daily life, whether it’s homeowners, renters, or auto coverage. These policies are necessary to protect the assets and people that are most important. But even the most comprehensive coverage has its limits, which is why it may be worth considering umbrella insurance. These policies protect you from the liability associated with unforeseen events not covered by standard insurance policies.
While umbrella insurance can be an invaluable parachute in the event of a crisis, it’s worth noting that rates are on the rise, and some policies may not provide as much coverage as they did in the past.
Here’s the silver lining: there are ways to sort out good coverage from bad. Let’s go over the basics of umbrella coverage, what exclusions may exist, how and why a carrier can deny coverage, and what you can do about it.
Do I need umbrella insurance?
First, look at your assets and how they factor into your economic stability. Your home, car, bank accounts, and investments may be top of mind, but your future potential income may also be on that list. If you find yourself in a lawsuit where large sums of money are on the line—and your insurance can’t cover the damages—you could be personally on the hook for them.
While raising the liability limits on your home or auto policies is a good idea, that may not be enough. An umbrella policy can help you avoid this hardship by protecting you against legal costs and judgments.
What does umbrella insurance cover?
As mentioned above, umbrella insurance, also referred to as excess liability coverage, takes over when any liability coverage on your personal insurance policies runs out. Standard personal liability coverage that’s part of a homeowners policy, for example, usually covers about $300,000 to $500,000. While that may seem like plenty at first glance, lost wages and medical bills if someone is injured can quickly add up to significantly more.
Without extra protection, the additional amount can come out of your current assets and potentially your future earnings — and many lawsuit judgments aren’t fully dischargeable in bankruptcy.
Digging a little deeper, umbrella coverage breaks down into three basic areas:
- Bodily injury liability. This covers injury to another individual, typically in the form of medical bills.
- Property damage liability. This includes loss or damage to someone else’s property and/or vehicles.
- Other personal liability. This covers libel, slander, malicious prosecution, shock or mental anguish, and false arrest, detention, or imprisonment.
A typical umbrella policy provides at least $1 million of extra liability coverage, including for judgments, legal defense fees, and some types of lawsuits not covered by traditional insurance.
How much can I expect to pay for umbrella insurance?
According to a survey report by brokerage firm Willis Towers Watson, low to mid-double digit price hikes are likely for umbrella insurance. But this is a welcome change from the double- and sometimes triple-digit increases seen in previous years.
But even with price hikes, the cost of $1 million in personal liability coverage remains fairly low— roughly $150 to $300 per year. And every additional million dollars in coverage will cost incrementally less over time. You may also be able to get discounts if you buy more than one policy from the same company that insures your home, car, or life.
Most providers will require you to already have home or auto insurance with minimum liability coverages of $300,000 and $250,000, respectively. This minimum amount also makes you less likely to have a coverage gap.
What level of coverage should I get?
Consider these factors when figuring out how much coverage you’ll need:
- The total value of all your assets. It’s pretty simple—the greater the value of your assets, the more coverage you need.
- The level of risk to those assets. This will depend on such factors as whether you’re a renter or homeowner, the risk of getting into or causing an accident, or any other activities that could be potentially dangerous.
- The possible loss of future earnings. A lawsuit can drain your current assets and lay claim to income you don’t yet have.
In general, an umbrella policy should at least cover the taxable assets you own, any homes outside of your primary residence, any nonqualified assets, and assets valued over $1 million in IRAs.
What can I do if my umbrella insurance claim is denied or the policy is canceled?
The short answer: don’t panic. But it is worth remembering that no insurance policy is guaranteed to cover everything (or forever). Some specific claim exclusions can include:
- Liability stemming from your professional life. The best way to guard against this is a separate business liability insurance policy.
- Liability that was written into a signed contract.
- A bad driving record.
- Potentially dangerous conditions on your personal property (trampolines, diving boards, etc.).
- Damage to your personal property. These claims would fall under auto or homeowners insurance, for example. The umbrella policy protects you from liability if you damage another person’s property.
- Damage inflicted intentionally by you or someone in your household.
So what can be done to avoid denied claims — or canceled coverage (which could involve a provider going out of business)?
- Know your policy’s exclusions. Ask for a sample policy and see if there are parts of your life that it won’t cover. If that’s the case, your agent may represent another umbrella insurance firm that does cover certain activities.
- Pick an insurer that has a solid financial footing, preferably with a high rating by a credit-rating agency such as AM Best or S & P.
Not all umbrella insurance policies are created equal, so don’t hesitate to shop around if your current provider doesn’t meet your needs.
The best umbrella is the one that’s right for you
Umbrella insurance can be incredibly valuable when unexpected legal storm clouds appear, bringing potential liabilities. But as with any policy, read the fine print and ensure you’re getting the protection you need and expect.
The NICRIS Insurance team stands ready to offer advice on the best policies to protect you and your assets. Contact us with any questions or to receive a free, personalized review to match the right coverage to your circumstances and potential risks.