Imagine you’re out of town and your teenage children host a party where drinking is involved. Some kids drink too much, trip, and seriously injure themselves. Their parents sue you.
That’s where umbrella insurance comes in. Umbrella insurance provides coverage for liabilities that exceed the normal policy limits of your car, homeowner’s, or watercraft insurance. It covers the injuries and damage to other people and their property—and not just what you cause, but also anything due to other family members or members of your household. Umbrella insurance can be distinguished from excess liability insurance because it also covers expenses not normally included, such as legal fees.
Some other common scenarios where umbrella insurance may be needed:
■ You cause a major accident at an intersection, leading to vehicle damage and significant injuries. Let’s say the car repairs and treatment bills add up to $300,000, which is the limit of your policy. But then one of the other drivers is out of work due to injuries and sues you for $100,000. You’ve maxed out your policy so now you’re responsible for that $100,000.
■ Your dog breaks free of its yard leash and bites a jogger in front of your house. You could be on the hook for their medical bills, along with a lawsuit for suffering and lost income.
■ Your son throws a baseball too hard in the wrong direction at practice, causing severe facial injuries to another kid. That kids parents sue you for medical costs.
■ You’re on the board of a charity and are sued for something the board does. You could be personally liable. In this case, your other forms of insurance won’t be helpful, so umbrella insurance would be one of your first lines of defense.
If you’re not sure you need umbrella insurance, there’s a clear-cut way to determine that. According to Investopedia, umbrella insurance is a good investment if the total value of all your assets, including your home equity and retirement savings, is greater than your car and homeowner’s insurance policy limits. Umbrella insurance will protect the excess value of your assets if you are sued.
Another reason umbrella insurance makes financial sense is that it’s relatively cheap compared to the coverage. A $1 million liability policy will run you about $150 to $300 a year, according to the Insurance Information Institute. Plus, each additional million will cost $75 to $50. If you have millions in assets over your policy limits, umbrella insurance is something you can afford. More importantly, you probably can’t afford not to have it.
At the Insurance Center, we offer umbrella insurance. Call us today at one of our main offices for more information.
Sources: Investopedia, NerdWallet, Forbes, and Insurance Information Institute.