How To Decide If You Need Umbrella Liability Insurance

April 18, 2018

In today’s extremely litigious society, it’s not usual to hear stories of people suing other people for things like injuries, property damage, medical costs or even for libel and slander. It’s also not uncommon to hear how that process often leads to the defending party declaring bankruptcy, sometimes for a thing that they had insurance to cover, like a car accident. It wasn’t because the person didn’t have insurance, it was because they weren’t adequately insured with the right type of insurance.

I used to think that umbrella insurance was only for rich people who had a lot of investments to protect, but I’ve reconsidered. With pre-teens who often have friends over and a rambunctious dog around the house, we are by no means swimming in money, but heaven forbid, should one of those kids get injured on our property, I want to make sure that we wouldn’t have to sell our home in order to pay for any expenses resulting.

What umbrella liability insurance covers

Umbrella coverage is an often-underutilized type of insurance that covers you in case of a lawsuit that exceeds the regular coverage provided by your automobile, homeowner’s, or renter’s policies. Umbrella insurance also provides coverage for claims that may be excluded by other liability policies related to issues such as false arrest, libel, slander, and liability coverage on rental units you own.

While you may already know that the cost of this extra peace of mind is reasonable, the main point is that for around 50 cents to a dollar a day (as a very rough average), umbrella or excess liability insurance, kicks into effect when the protection from your regular policy is completely exhausted.

Above and beyond your standard coverage

For example, while your homeowners or renters insurance policy might provide liability protection of up to $300,000, an umbrella policy can add between one and 10 million dollars of extra protection. In this highly litigious world, it’s not unusual for settlements and legal costs to exceed that $300,000 figure.

A common myth is that umbrella insurance is only for the super wealthy. The somewhat eye-opening reality is that if your assets (including retirement accounts and, in many states, your home equity) and your future income exceeds the liability limits on your auto and renter’s or homeowner’s policy, you could have major problems should you ever end up being faced with a major lawsuit. It is not inconceivable for middle-class families to lose almost everything and even have their wages garnished to satisfy a lawsuit arising from a serious car accident, freak injury at their home, or accusation of libel or defamation of character. Even if you win the lawsuit, an umbrella policy can help recover some of your legal costs.

Are you at risk?

There are certain situations or life circumstances that could put you at a higher risk. Here are two ways to evaluate your potential need for umbrella coverage:

If you own a dog, have a pool, have a trampoline or other playground equipment, or have a teenage driver in the household you may be at a higher risk due to higher risk for accidents or injury on your property or on your watch.
Ownership of assets such as a primary residence, retirement accounts, brokerage accounts, vehicles, boats and recreational vehicles are also at risk, so if you have a lot of stuff, you will want to protect these assets with an umbrella policy.

Finding coverage

To learn more about umbrella policies and to get a quote, a good place to start is by reaching out to your home and auto insurance agent — there are often discounts for bundling policies. You may also want to check any professional organizations or clubs you belong to. For example, my college alumni association is always sending me promotional material for a group policy discount offered to all alumni. You may also want to check with your HR to see if there is a discount program offered to employees that you can sign up for during open enrollment.

Insurance may not be the most exciting topic and contemplating the need for it can be downright depressing, but ignoring it can leave you or your family in dire straits. So do your family a favor this spring and make sure you’re properly insured.