Understanding Umbrella Insurance

What is Umbrella Insurance?

Umbrella insurance is a policy that protects you when claims or lawsuits exceed the limits on your insurance policy (auto, homeowners, renters, and other types of coverage).  It’s a low-cost policy--as low as $150 a year-- to keep your assets safe and prevent you from facing tragic loss.

Umbrella insurance may be necessary due to the fact that all of your other insurance policies have limits.  Your auto limits might be $100,000 and your homeowners $250,000. These policies only cover you up to this limit.  If a claim exceeds this amount, you are responsible to pay the remaining balance. The problem is, the cost of claims has been skyrocketing.  This is partly because of rising hospital costs and large lawsuit cases.

How Much Does Umbrella Insurance Cost?

Umbrella insurance is a low-cost policy.  It typically costs around $150/year for one million dollars in coverage.  For each additional million in coverage, it would tack on another $100 per year.  The cost to coverage ratio makes umbrella insurance a no-brainer.

What Does Umbrella Insurance Cover?

Umbrella insurance provides coverage for bodily injury, property damage, injury to reputation (libel, slander, defamation), and legal fees.  To better understand the damages, take a look at these actual claims below:

Bodily Injury

  • A lady was driving on the highway when she drifted over the centerline, hitting an oncoming car.  The claim exceeded her auto insurance limits and her future wages were garnished for 10 years.
  • A dog bit a family friend, resulting in multiple surgeries.  The injured friend was awarded $10,000,000.
  • A family hosted a beach party.  One of those present threw a propane tank into a bonfire, which exploded and caused injuries to several guests.  The family was forced to pay $20,000,000 for failing to properly supervise the party.
  • A man dove into his friend’s swimming pool, struck his head on the bottom, and became quadriplegic as a result.  He sued the homeowner and was awarded $10,000,000.

Property Damage

  • A family rented a boat while on vacation.  While water skiing, the boat crashed, resulting in $2,000,000 in damages.

Injury to Reputation

  • A young child hated one of her teachers at school.  She made several false statements about the teacher online.  The teacher sued the parents and received $750,000 in damages.

Legal Fees

  • A softball player filed a $700,000 lawsuit against her former coach, alleging his teaching style ruined her chances for an athletic scholarship.  Although the coach won, he still had to pay thousands of dollars in legal fees.

With all of these examples, an umbrella policy would have paid for the excessive claims.

Who Needs Umbrella Insurance?

These claims highlight the reality that anyone can be at risk and potentially face an excessive claim.  A policy is especially necessary for anyone who:

  • Owns property.
  • Owns things that can lead to injury (pool, trampoline, boat, ATV, etc).
  • Has a pet.
  • Carpools or drives other people a lot.
  • Hosts parties.
  • Rents property.
  • Has a family member who frequently gossips online.
  • Coaches.
  • Volunteers.
  • Participates in activities where injury to others is possible (sports, skiing, hunting).
  • Has a reputation for being wealthy.