Umbrella Insurance 101 | FAQs & Tips

What is Umbrella Insurance?

Umbrella insurance is a form of liability insurance that will supplement your basic liability policies, such as your auto, home or renters insurance. An umbrella liability policy covers a much higher limit and goes above and beyond claims directly relating to your home and auto.

The main purpose of your umbrella policy is to protect your assets from an unforeseen event, such as a tragic accident in which you are held responsible for damages or bodily injuries. If another party files a lawsuit against you, your umbrella coverage will pay for the damages you're legally responsible for up to the policy limit.

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What Does Umbrella Insurance Cover?

An umbrella policy provides additional coverage or “excess liability” above the limits of your basic policies. It can protect you from bodily injury liability claims and property damage liability claims. Umbrella policies also provide a broader form of coverage and can help cover legal fees, false arrest, libel, and slander.

How Does Umbrella Insurance Work?

Your umbrella insurance can come into play if you are found liable and need to pay damages, or if you are sued and need to pay for your legal defense – even if the result is that you are not found to be responsible. An umbrella policy only pays once your basic liability limits have been exhausted or the claim is excluded from the basic liability coverage.

The claim will be made against you, the policyholder, on behalf of the wronged party. Then your insurance company may pay the settlement amount up to the limits of your coverage. If the settlement amount exceeds your coverage limits, you are responsible for paying the remaining amount out of pocket.

Why Is Umbrella Insurance Important?

Your car, house, investments and retirement accounts, as well as your normal checking and savings accounts and even future income, are all considered assets. It is important to know that if you are sued for a lot of money and do not have enough liability insurance or an umbrella policy to cover those costs, all of your assets are exposed.

People typically choose to buy an umbrella policy because they want to prevent the possibility of financial ruin due to one misstep or unforeseen accident. Umbrella insurance can provide the protection to prevent such an outcome.

How Much Does Umbrella Insurance Cost?

Coverage for an umbrella policy typically starts in the rage of $150-$200 for a $1 million policy. Your premium will increase if you decide to increase coverage. However, getting twice the amount of coverage and increasing the policy limit to $2 million will not usually double the cost of your umbrella insurance premium.

Is Umbrella Insurance Tax Deductible?

If you have a personal umbrella policy, your premiums are not typically tax-deductible. If you own a business and have an umbrella policy that supplements your other business liability policies, your premiums may be tax- deductible.

One particular gray area exists with owners of rental properties. If you own homes and rent them out, you are conducting a business transaction, but you can also include your rental properties under a personal umbrella policy. In this case, you may be able to deduct a portion of your premiums from your taxes.

How Much Umbrella Insurance Should I Carry?

When choosing your coverage limits, consider three things:

The risks you may face. Consider risks as a homeowner or renter, the risk of causing an accident during your work commute, and any potentially dangerous activities you participate in that could put those around you at risk.
The value of your assets. These include properties, possessions, stocks, bonds, savings and retirement funds. The more assets you have to protect, the higher the umbrella policy limit you should consider.
The potential loss of future income. Because liability lawsuits can result in loss of both current assets and future income, even those with few assets to protect may want to consider the long-term ramifications of a serious claim.

When you review your future income, consider your earning potential. You not have many assets now, but if you’re on track for a high paying career, you could be involved in a lawsuit that can target money you haven’t earned yet.

Speak with an independent insurance agent to determine your specific risk factors and learn more about how to protect your current and future assets.

Where Can I Get Umbrella Insurance?

You can buy an umbrella insurance policy through many different insurance companies and agents, but one of the best ways to get umbrella insurance is through an independent agent in our network.

These agents can comparison shop from many insurance companies specifically for your needs, and find the right policy at the right price for your budget.

Does Umbrella Insurance Cover Professional Liability?

Umbrella insurance can most certainly cover professional liability and it’s fast becoming one of the most popular forms of insurance with professionals. Psychologists, financial planners, and investors are just some occupations that take advantage of this policy.

A professional liability or business umbrella policy only provides liability supplements to existing business liability policies. A business umbrella policy differs from a personal umbrella policy because it focuses on specific liabilities businesses face, such as “errors and omissions,” meaning advice or consultation that results in a loss for the client.

Does Umbrella Insurance Cover Malpractice?

As a professional in certain healthcare and legal fields, you probably have a comprehensive malpractice insurance policy already in place. If you are sued and the limits are exceeded on your malpractice policy, your business umbrella policy can pay up to the policy coverage limit.

Make sure the deductible on your umbrella policy and the coverage limit on your malpractice policy are butted against each other. Otherwise, there could be a sizable gap and you will likely be responsible for paying that amount out of pocket.

Does Umbrella Insurance Cover Lawsuits?

Umbrella insurance can cover lawsuits and liability claims that do not result in legal action. Protecting assets against potential lawsuits is the main motivator for many people to purchase umbrella insurance.

The main purpose of liability insurance is to protect you if you’re found liable for causing property damage or bodily injuries, and for your legal defense even if you are not found liable. When someone sues you, they are seeking reparations for damages you are perceived to have caused.

Your primary liability insurance will pay the costs associated with the claim after your deductible has been met, and up to the limits of the liability policy. If the wronged party is awarded more than your standard liability coverage, the umbrella insurance begins to pay out.

Does Umbrella Insurance Cover Property Damage?

Umbrella insurance will cover property damage in most but not all circumstances. We all know accidents happen, and you never know how extensive the property damage can be until you get an estimate.

If you cause an accident involving several cars, everyone may walk away unscathed but the property damage to other cars can be enough to break the bank.

Does Umbrella Insurance Cover Dog Bites?

Umbrella insurance covers dog bites under most circumstances. If your dog bites your neighbor, you are liable for that person’s bodily injury. Umbrella insurance can also cover you if your neighbor decides to seek legal recourse.

Additionally, depending on the insurance company issuing your homeowners policy, an umbrella policy may be your only real protection if you own certain aggressive dog breeds.

Does Umbrella Insurance Cover Floods?

Umbrella insurance typically does not cover flood damage. It will only cover property damage and bodily injury that you cause and will only provide payment to a third party. However, there are water damage scenarios that your umbrella insurance might cover.

For example, if you live in an apartment, condo or duplex above another unit and you forget to turn off the bathtub which overflows and destroys your downstairs neighbor’s expensive antique furniture, your umbrella policy would most likely protect you in the event of a large claim or lawsuit.

If you want to purchase flood insurance, it’s available through the National Flood Insurance Program (NFIP). Contact an independent agent in our network to inquire about NFIP flood coverage.

Does Umbrella Insurance Cover Uninsured Motorists?

The majority of umbrella insurance policies do not cover uninsured motorists. An umbrella policy is meant to cover any property damage or bodily injury you cause.

In a scenario where an uninsured or underinsured motorist causes an accident and does not have the coverage required to pay for your property damage or injuries, you would typically need to have uninsured/underinsured motorists coverage in place to receive compensation.

Does Umbrella Insurance Cover Car Rentals?

You can insure a rental car in several different ways, including through your primary policy or through the rental agency itself. To fully protect yourself financially in the event that you cause an accident while driving a rental car, you may consider purchasing an umbrella liability policy.

Umbrella insurance is a good policy to have if you want to make sure you have coverage in unpredictable situations, including when you rent a car.

Does Umbrella Insurance Cover Rental Property?

Anyone with assets or those who may be at risk of a lawsuit can benefit from the protection of liability insurance. If you are a renter and have a renter’s insurance policy, you can purchase an umbrella policy to extend your liability limits beyond the standard coverage.

If you are held liable for causing property damage or bodily injury, your umbrella insurance will help protect your assets and cover any legal fees.

Should Landlords Have Umbrella Insurance?

An umbrella policy can be a wise investment for landlords. If you own rental property, you are responsible for making sure your property is safe for your tenants and your guests. An umbrella policy will most likely protect you in several different scenarios, such as:

A third party sues you for damages your tenants cause
A visitor is injured in a fall due to a broken step or handrail
A guest is injured in your workout or pool facilities
You neglect to change the locks on a unit and a former resident with a key burglarizes the apartment

If you have a substantial amount of personal net worth, you may want to invest in umbrella insurance to protect yourself. Make sure you find the right coverage by consulting with a member agent in our network. Independent agents can customize your coverage for your unique needs.

Contact a local independent insurance agent today to get the personalized coverage you need.

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