What is a Personal Umbrella Policy and When Do You Need It?
Insurance is an excellent and effective way to protect against the everyday risks that threaten your livelihood. But life is unpredictable and even the most robust insurance coverage may leave you exposed to some excess liability.
Take, for instance, a car accident that results in a claim against you that exceeds your total liability coverage. In such a case, you would be held personally responsible to cover the difference.
Unless you own a personal umbrella policy.
What is Personal Umbrella Insurance?
Personal umbrella insurance is an insurance policy that provides liability coverage beyond the limits of your existing auto, home, or boat policy. In some cases, it may even provide coverage for losses that are not covered by your existing insurance.
Umbrella insurance policies typically range from one million to five million dollars of coverage. While umbrella insurance is a separate policy, it’s a safe way to further protect your livelihood from excess liability.
Personal umbrella insurance isn’t just for the wealthy or well-off, either. In general, the premium for one million dollars of coverage averages between $150 to $300 per year. There’s no need to break the bank to protect your hard work and savings from costly litigation or wage garnishment.
What Does Personal Umbrella Insurance Cover?
A personal umbrella policy covers:
- Additional liability beyond the limits of your existing home, auto, or boat insurance policy
- Libel and slander
- Expenses associated with a lawsuit, such as defense costs, attorney fees, and other expenses
- False arrest
- Rental property liability
- You and other residents of your household
Personal umbrella insurance does not cover:
- Your business or business dealings- however, a commercial umbrella insurance policy may.
- Criminal acts
Personal umbrella insurance does not cover personal property, either. If your toilet overflows and ruins your bathroom, a personal umbrella policy would not cover the cost of damages. If, however, the water causes damage to your downstairs neighbor’s apartment, personal umbrella insurance would cover your liability.
When Do You Need Personal Umbrella Insurance?
Personal umbrella insurance is an effective solution toward covering the excess risk you face during the course of your day-to-day.
Consider your commute, for instance. If you take public transit to work or your commute is short, the odds of getting into an accident are minuscule. A lengthy drive to work, however, exposes you to an increased potential for serious risk.
And what if you’re a rental baron with a handful of rental properties in your portfolio? Each property comes with its own set of risks: a crack in the sidewalk, a flimsy stair railing, or a tenant’s aggressive dog can all lead to costly legal trouble for which you are liable.
The age of social media exposes you to its own unique set of risks, too. Sending a fiery tweet about a bad experience at a local restaurant may help you feel better. If, however, the recipient considers it libelous, you may have a lawsuit on your hands — even if the suit is ultimately deemed frivolous.
It’s worth investing in a personal umbrella policy if you:
- Drive far or frequently
- Own rental property
- Own dangerous equipment, such as trampolines or swimming pools
- Have a dog (though some breeds are not eligible to be covered by personal umbrella insurance)
- Coach or play sports
- Own significant assets
- How to Buy Personal Umbrella Insurance
The low cost and added protection of personal umbrella insurance make it a powerful component of your insurance and financial planning.
Before buying a personal umbrella policy, an insurer will likely require you to have an existing home, auto, or boat insurance policy. You may also be required to have a minimum amount of liability coverage through such a policy.
Next, you’ll need to determine how much coverage you need from a personal umbrella policy. Financial experts like Dave Ramsey recommend purchasing a personal umbrella policy with one million dollars of coverage once your net worth reaches $500,000 or greater.
Of course, there’s never a wrong time to purchase personal umbrella insurance. Discuss your unique situation and plans with a Gallo|Thomas advisor to identify and cover your specific need for a personal umbrella policy.