Umbrella insurance — sometimes called excess liability insurance — is not a requirement like car insurance or homeowners insurance. Instead, it’s like an extra security net that protects against the unexpected things in life. For example, anyone can find themselves in an expensive lawsuit that diminishes their current savings and puts them in debt for years to come.

Umbrella insurance can be especially beneficial for people with certain jobs, hobbies or property. Someone may want to consider picking up umbrella insurance if they:

  • Participate in activities that increase their chances of being sued
  • Own a trampoline, pool or dog (all of which could potentially injure visitors)
  • Have a high net worth or significant savings and assets
  • Are employed or expect a high earning potential
  • Own or rent property

Don’t assume that just because you don’t have a million dollars in assets that an umbrella is unnecessary.  The goal of an umbrella policy is to protect existing assets and your future earning potential from liability claims against you that would be covered under an umbrella policy.

Buying Umbrella Insurance

Umbrella insurance is relatively inexpensive for the value. With a coverage limit that starts at $1 million, it’s nice cushion from the start. The average cost could be $150-$300 per year for $1 million in coverage, but the rates vary by insurer, your risk history, and the assets that you are insuring. Most umbrella carriers will write coverage up to $5 million, but you can go significantly higher based on your needs and underwriting approval.

There are some requirements for umbrella insurance. You’ll first have to carry auto and property insurance to qualify. You’ll also need to make sure that have the minimum amount of liability on those policies before umbrella coverage can be added. Your insurance agent will be able to advise and structure your policies with the appropriate coverages and discounts.

What It Covers

Umbrella insurance covers a variety of costs, but can slightly vary by insurer. It pays for legal defense costs, as well as another person’s property damage, injury treatment or funeral costs. It can also cover lawsuits that involve libel, slander and defamation of character. Umbrella insurance is especially valuable for landlords because of the liability tied to renting a property that you own.

It’s also important to note that there are certain things the insurance won’t cover. For example, intentional and criminal acts will not be paid for by umbrella insurance. It also won’t cover injuries or damage that your business is liable for, your own injuries, or damage to your own belongings.

How Much Umbrella Insurance You Need

It’s recommended that you buy enough umbrella insurance to cover your net worth, including your savings and other assets. For anyone sure they’ll be earning a significant pay raise in the near future, potential income could also be factored in.

Whether we like to admit it or not, accidents happen and things go wrong. Insurance is a way to safeguard against some bumps in the road we don’t plan for. An insurance agent can help you decide if umbrella insurance is a wise purchase. For many people, the peace of mind and increased financial security are definitely worth their while.