Umbrella Insurance – Why You Need It and How It Works
If insurance is for a rainy day, umbrella insurance is for a storm! A day when someone hits you with a lawsuit for hundreds of thousands, or even millions of dollars. It can happen to anyone, and the person suing doesn’t even have to win to put the defendant on the brink of financial ruin.
Most lawsuits end in a settlement. Usually leaving the defendant to pay the person who sued them, along with attorney fees and expensive court costs. So, is your current policy enough to protect you?
Say you’re at fault in an auto accident that causes serious injuries to the driver and/or passenger(s) in the car you hit. Your auto insurance has liability limits of $100,000 per person and $300,000 per accident.
If the persons involved suffer injuries that keep them from working for months or years, $100,000 will not go far. The accident victims could sue you for medical bills, lost income, even pain, and suffering. If you are hit with a $250,000 judgment for just one person involved in the accident, your auto liability insurance will cover the first $100,000 — and you’re stuck with the rest.
That doesn’t include other passengers or the legal fees you have to pay to your attorney. In some cases, you may even have to pay all or part of the legal fees for the other party/parties. If you don’t have a combination of insurance and cash on hand to pay the judgment, the court can:
- Order the liquidation of your assets, including your savings and family’s home.
- Garnish your wages on future earnings.
Umbrella insurance is a crucial protection, particularly for people with homes and other significant assets to protect.
Umbrella insurance is cheap and versatile and extends liability coverage for:
- auto policy
- homeowner’s policy
- condo policy
- renter’s policy
- ATVs and snowmobiles
How Does Umbrella Coverage Work?
Umbrella coverage picks up where the liability limits of your homeowners, auto, renters, and other policies leave off.
Say you have a per-person liability limit of $250,000 on your auto policy. If you cause an accident and a driver or passenger in the other car is awarded $450,000, your auto policy will pay the first $250,000 and your umbrella will kick in the remaining $200,000.
Typically, you must carry minimum liability coverage on your home and auto before you’re able to purchase umbrella insurance.
- For homeowner’s policy – $300,000 minimum liability
- For auto policy – $250,000 for bodily injury to one person and $500,000 per accident minimum liability.
Most insurers cap the home and auto liability coverage they will sell you at $500,000 or $1 million. So it’s usually cheaper to just buy an umbrella policy than to increase your liability coverage beyond the minimum required by your insurer.
How Much is Umbrella Coverage?
Most policies are sold in increments of $1 million, costing roughly $150 to $350 a year for the first $1 million of coverage. It costs an additional $100 per $1 million of coverage above that. Several factors affect rates which include:
- where you live
- how many homes you have
- other expensive items you’re insuring like cars, boats, or RV’s
Not sure of how much coverage you’ll need? Talk to a Texan agent today to review your options and find the best combination of coverage and value for your needs.