Money, Health, and Other Things

Educational Blog in the Area of Family and Consumer Sciences for the Middle Peninsula


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Risk Management and Insurance Basics, Part XIV

This week, we’ll discuss umbrella insurance.

Unlike most of the insurances from our previous weeks, many people are unfamiliar with umbrella insurance.

Umbrella insurance provides supplemental liability insurance. As an example, let’s say you cause a bad 10-car pileup. Let’s say you have $500,000 in liability coverage through your auto insurance policy. If you’re liable for $800,000 of injuries to the other drivers and passengers, while your policy will cover the first half a million dollars, what about the other $300,000? If you have no umbrella insurance, you would be personally liable! Umbrella insurance can provide supplemental liability coverage to auto, home, and other liability insurances, as well as some policies providing coverage for liability related to libel, slander, false imprisonment, boat or aircraft accidents, and damages caused on another’s property. Liability coverage for service on a non-profit board may be covered as well.

Typically, insurance companies will require you to have certain minimum coverage amounts for your auto and home liability insurance policies. For instance, it’s not uncommon for an umbrella insurance policy to require you to have at least $300,000 or $500,000 of liability coverage on your auto insurance policy.

Umbrella insurance is generally sold in increments of $1,000,000 of coverage, with the first million dollars generally costing $150-$400 a year.

Should everyone have umbrella insurance? This largely depends on your risk management preferences – while liability claims above the maximum available coverage for auto and home insurance policies are rare, they do happen. There are also other considerations depending on your personal situation. Do you have significant assets that you’d like to protect in the event of an expensive lawsuit? Are you at a higher risk of being sued? Unfortunately, higher earning careers, like doctors and professional athletes, are more frequently targets of lawsuits. Are there other liability risk factors like renting out your property, having a trampoline, pool, or hot tub, frequently hosting large parties, or having teenage drivers in the household?

If you do decide to purchase umbrella insurance, be sure to shop around and be sure the policy covers what you need it to cover. Check if you’re able to receive significant discounts by bundling with a current insurance property policy.

That concludes our discussion on umbrella insurance, next week we’ll return and discuss long-term care insurance.