Umbrella insurance is an extra liability policy that covers you beyond the limits of your standard home or auto policies. While the primary insurance policies are structured to handle a certain amount of liability for a claim, they do not cover any costs beyond their stated limits. Umbrella insurance is a secondary layer of financial protection for claims that exceed those limits.
Whether or not an umbrella policy is right for you depends on your unique exposure, risks, assets, and budget. These policies can be very affordable for the amount of protection they provide, so it is always a good idea to review the benefits of adding umbrella coverage to your insurance package.
How Does Umbrella Insurance Work and What Does it Exclude?
Umbrella insurance is strictly a secondary liability policy that can only be triggered once your primary policy reaches its maximum payout. Umbrella policies are available on top of auto, homeowners, condo, and renters insurance.
Because umbrella insurance can only be used for liability protection, it solely applies to third-party claims that you are responsible for damages to someone else. Damage to your own home or your own injuries are excluded from umbrella coverage. Additionally, this policy will not cover:
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Business and commercial activities
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Unlisted or excluded properties and vehicles
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Intentional or criminal acts
Policy exclusions vary by insurance carrier, so discuss your particular needs with your insurance agent to research the right policy for your additional coverage.
For covered events, umbrella insurance protects policyholders from catastrophic financial expenses. In scenarios such as a multi-vehicle accident or a guest sustaining a life-altering injury in your home, your policy limits could be exhausted well before the total claims for property damage and medical bills have been paid. Your umbrella policy prevents you from being personally responsible for the balance of those damages up to its limit.
Umbrella insurance typically starts at $1 million in coverage, although it can scale up to $2 million, $5 million or more. To qualify for this secondary policy, your primary policies must maintain certain liability limits. Most commonly, insurers require 250/500/100 limits for auto insurance and $300,000 liability for homeowners insurance.
Who Should Purchase Umbrella Insurance?
There is a common misconception that umbrella insurance is restricted to the ultra-wealthy. This could not be further from the truth. In fact, middle-income families frequently enjoy the financial security of carrying this additional layer of insurance. Umbrella insurance is not based on your net worth, but rather your total risk exposure and tolerance.
Some of the reasons individuals and families obtain an umbrella policy include:
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Wanting to prevent losing their personal savings, home equity, and assets in a lawsuit
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Earning a high income that could one day be exposed to wage garnishment
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Engaging in activities or owning property that has a higher-than-average liability exposure
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Feeling that the affordable cost of a policy provides effective security against a serious claim
Your insurance agent can help you evaluate your total risk profile to determine if an umbrella policy is the right choice. Following are some standard scenarios in which you should consider this additional insurance.
You have a teenage or young driver at home
A newly licensed driver elevates your overall household liability risk. Teenage drivers statistically have higher accident rates due to their inexperience, which means your primary auto insurance limits may not be sufficient. Of course, not every teen driver creates more risk at the individual level. This is simply a milestone that calls for an insurance review to make sure your family has adequate safeguards in place.
You have high-risk property features
If your home is entertainment central because you enjoy having company or you have amenities that naturally draw visitors, an umbrella policy can help you protect the property you love. A pool, trampoline, fire pit, or play set adds serious exposure for significant injuries. Household pets and routinely having guests also bring on higher than usual risk. Don’t make the assumption that your friends and family would never file a liability claim against you. Instead, meet with your insurance agent to learn more about protecting yourself and your loved ones with comprehensive insurance.
You have significant savings, investments, or assets
If you are ever sued for a major injury or property damage, a court can award far more than what your insurance covers. If your primary insurance is less than the total judgment, the claimant can come after your savings, investments, home equity, and other personal property. Rather than believe your net worth is too low to be considered in a lawsuit, start a practical conversation with your local insurance agent. You may be surprised to learn that you have more to protect than you initially thought!
You own additional property
Whether you have a boat, recreational vehicles, a residential rental unit, or a short-term rental unit, your property comes with inherent risks. Tenants, friends, family, and strangers all have the potential to get injured or experience property damage for which you may be held liable. Always discuss your specific property with your insurance agent so they can identify carriers and umbrella policies that cover your needs.
Umbrella insurance policies normally start at $1 million in additional coverage, but they can extend far beyond that amount. $1 million, $2 million, and $5 million policies are fairly standard, and they can be increased in increments of $1 million from there. Many clients are surprised to find that these policies are extremely affordable, often just a few hundred dollars per year. Contact your agent to review your risks, assets, current limits, and budget before exploring your options for umbrella coverage.
Enhance Your Liability Coverage with an Umbrella Policy that Fits Your Needs and Budget
Deciding on umbr
ella insurance should always happen along with a comprehensive policy review. Before purchasing secondary coverage of any type, it is essential to know exactly what you already have in place and whether or not your underlying limits are adequate for your needs. From there, you and your agent will have the right starting information to explore endorsements and umbrella coverage that provide significant financial protection.
At Freedom Insurance Group, we help drivers, homeowners, and renters take a proactive look at their full range of liability. As an independent insurance agency serving Northeast Philadelphia, Bucks County, Montgomery County, and New Jersey, we have been helping our clients review their insurance needs and the available solutions for over 20 years. Request your insurance review with an experienced member of our team to learn more about umbrella coverage and whether or not it’s the right choice for you. Simply complete our online quote request or call our office now at 215-673-0300 to get started.
Frequently Asked Questions
Does umbrella insurance cover car accidents?
Yes. If you cause an auto accident and the costs for injuries or vehicle damage exceed your auto policy’s bodily injury and property damage limits, your umbrella insurance steps in to cover the remaining liability up to its policy limit.
Can umbrella insurance cover accidents at your home?
Yes. If an incident on your property such as a pool injury, dog bite, or severe fall results in medical expenses and legal claims that surpass your homeowners liability limit, your umbrella policy provides extra liability coverage.
Do you have to own a home to get umbrella insurance?
No. Renters and condominium owners can also purchase umbrella insurance. As long as you maintain qualifying underlying liability limits on an active renters or condo policy and an auto policy, you can secure umbrella protection.
Is umbrella insurance only for wealthy people?
No. Anyone can be involved in a catastrophic auto accident or face a serious premises liability lawsuit. Because lawsuits can target savings, home equity, and future wages, umbrella insurance is a practical, cost-effective safeguard for everyday families and middle-income households.
