I admit that I am an insurance skeptic. Not only can insurance be extremely complicated, but it is also frequently sold aggressively, making it difficult to determine whether you are receiving good advice on what insurance you should buy. Since I do not sell insurance, I hope that I can provide some independent, unbiased advice on a common insurance product: Umbrella Insurance.
Umbrella insurance is designed to protect your finances from a major event for which you are financial responsible. You may think, “I have homeowner’s insurance, and I have auto insurance, why would I need umbrella insurance”? There are a couple of reasons to carry this additional coverage. An Umbrella policy provides additional coverage above and beyond what your other insurance covers. For example, if you are in an auto accident and you are sued for an amount greater than your auto coverage limits, the umbrella coverage can step in to help cover the potential liability. Often, auto insurance policies only provide bodily injury limits of $300,000, while umbrella policies are sold with limits of $1 million or more. In a major accident the $300,000 limit could easily be exhausted.
Umbrella insurance also offers coverage that may not be covered in your other policies. For example, most umbrella insurance policies will also cover slander, libel, false arrest, malicious prosecution, shock/mental anguish. This list may seem a bit obscure, but the reasons they may be important are a little more common. If you have a swimming pool or trampoline where children could be injured, you probably should have umbrella coverage. If you have horses or a large dog that could cause injury to someone, then you should probably have umbrella coverage. If you employ household staff or frequently have work done on your home, then you should probably have umbrella coverage. If you sit on a charitable board or have a high public profile, for example as a volunteer or a political activist, then you probably should have umbrella coverage.
Umbrella insurance does not cover everything, so it is important to consider where your risk lies. For example, umbrella insurance does not cover liability from businesses that you own or may not cover all types of vehicles like recreational vehicles or farm tractors. If you commit a crime, like driving under the influence, most umbrella insurance policies will not cover the liability. Make sure to review your individual policy to understand what is included.
So, do you need umbrella insurance? The answer is “probably”, especially if you have significant assets that would be put at risk by a major lawsuit. Umbrella policies can usually be added for a few hundred dollars a year and provide significant peace of mind. I added mine a few years ago after my 16-year-old daughter flipped one of our cars. She was fine, and thankfully no one was injured. Nonetheless, it was reminder that the unexpected can happen.
If you would like to learn more, I recommend contacting your existing homeowner’s or auto insurance carrier and talking with them about adding the additional coverage. For a few hundred dollars a year you can reduce the worry of the unexpected.