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Insurance Risk Crossed Out

Benefits of Umbrella Insurance

As consumers, we have access to an array of different insurance products. The most common insurance products protect your auto, home, motorcycle, recreational vehicle and watercraft from damage, and you from a liability claim. While these basic insurance products meet the needs of many customers, individuals who have an extensive amount of assets are not adequately covered by these standard liability policies.

If your teenage child hits and severely injures a pedestrian in an auto accident, are you willing to give up your house or your 401K because your auto policy liability limits were not sufficient to pay for all the expenses?

Umbrella Insurance

An umbrella policy provides a layer of liability coverage in addition to your existing auto, home, or recreational vehicle liability policies. It can help pay for both damage and injuries resulting from auto accidents, dog bites, slip and fall incidents on your property, defamation lawsuits, and even landlord liability.

Who Should Purchase Umbrella Insurance?

Individuals who have a significant amount of assets should purchase umbrella insurance. If you or your family members are liable for causing extensive damage or injury to another person, you (despite your direct involvement in the loss) can become personally responsible for out-of-pocket financial contribution towards the resolution of that claim. This can happens if your existing policy limit is not high enough to cover the total value of the claim.

If the injured party has not been made whole due to lacking insurance funds, your assets could be used to complete this individual’s claim in the form of courts granting access to your future earnings or placing liens against your property. An umbrella policy provides that additional cushion of coverage to protect these assets.

Purchasing Umbrella Insurance

Many reputable carriers offer umbrella insurance with company specific guidelines for coverage qualification. As with any insurance policy, the insurance company has to determine if you are a good risk for the company to assume. This risk evaluation process can become more selective when purchasing umbrella coverage because it promises a greater than usual amount of protection for you.

Insurance carriers that offer umbrella insurance require that you carry a specified minimum amount of liability coverage on the other liability policies you have. For example, the insurance company may dictate that you must purchase an auto bodily injury liability limit of $250,000 per person, up to $500,000 per accident, before you can purchase an umbrella policy.

Different insurance carriers offer different limitations on the amount of umbrella coverage you can have on your policy. Usually, the minimum limit offered for umbrella policies is $1,000,000 in coverage, but the maximum can be exponentially greater depending on the organization.

Some insurance companies offer umbrella insurance only to their existing customers, or they are so selective that only a few customers have access to it. Other companies do not offer umbrella insurance at all. Check around, many insurance providers offer standalone umbrella policies subject to the review of your application.


One reputable insurance carrier advertises $1,000,000 in umbrella coverage for $15 per month, pending the evaluation of your application and overall risk. The price will vary based on your personal history, risk profile, and the amount of coverage you select.

The best way to reduce the cost of your umbrella policy is by bundling all of your insurance products with one insurance carrier. This produces a discount on your combined total products. It may make it easier for you to obtain umbrella coverage as you work with a provider who has an already established relationship and history with you.

Coverage Selection

Whether you are selecting liability limits for an auto policy or an umbrella policy, you should consider the total amount of your existing assets to determine how much liability coverage you should have. The coverage you carry on your umbrella policy, in addition to your personal auto, home, recreational vehicle, or boat policy, should be sufficient to cover your total assets.

Some people choose to carry the maximum amount of coverage their auto and home insurance policies allow them to carry, and take out the minimum amount of coverage they would need under the umbrella policy. Other individuals choose to carry the most minimum amount of liability coverage necessary to be able to access umbrella coverage on their auto and home insurance, while taking out a larger umbrella policy.

Personal Needs

Insurance agents and claims adjusters can make suggestions about what kind of coverage to purchase, but you have to make the ultimate decision based on your financial needs.

Too often, the conversation about purchasing umbrella insurance comes following a horrible accident, and then it is too late. Insurance coverage is effective for losses that occur after the policy has been purchased – you cannot purchase the coverage retroactively.

Review your insurance needs yearly. A good rule of thumb is to re-evaluate your needs each time you go through a major life event (marriage, new baby, relocation), make a large purchase or acquire a new asset. Ensure that you are adequately protected before it’s too late.