Umbrella insurance is for more than just millionaires.
Normally sold to high net worth individuals, umbrella insurance policies are often used to protect people with a lot of assets to lose beyond the basic coverage of their home and auto insurance policies. They can also provide extra protection from liability lawsuits if they’re at fault in an accident or someone is injured.
What umbrella insurance isn’t often considered for are odd mishaps and incidents that could happen away from your home and be covered by an umbrella policy.
Umbrella insurance is cheap
Umbrella coverage usually starts at $1 million. If your net worth is greater than that, then it’s worth getting coverage that equals your net worth.
A $1 million umbrella policy can cost only $150 to $300 per year, according to the Insurance Information Institute, or III. The next $1 million will cost about $75, and $50 for every $1 million afterward.
To get one, however, you’ll first need at least $250,000 in liability protection on your car insurance and $300,000 in liability insurance on your homeowners policy. Those policies will be collected from first if a claim is filed.
Protection from lawsuits
Other than protecting the assets of the wealthy — such as expensive homes and cars — umbrella insurance can offer more protection from lawsuits than a standard homeowners would.
Suppose you have a $300,000 homeowners policy and someone trips on the cracked sidewalk in front of your home and is injured. If they’re in the hospital for a long time and face a $500,000 hospital bill and then win a lawsuit requiring you to pay it, an umbrella policy would pay the difference after your homeowners policy paid its maximum amount.
That may be why umbrella insurance is technically known as personal liability insurance. Its main goal is to protect policyholders from lawsuits above the liability limit on their home or car insurance.
Other ways umbrella insurance can help
An accident at your home where an injured person could sue you for liability is one of the top reasons to get umbrella insurance. They can include having a pool without a fence that neighborhood kids could get into when you’re gone. A trampoline is another “attractive nuisance.” Or your dog could bite a passerby.
But there are other instances when an umbrella policy could be needed:
Accidents on rental property you own, such as someone tripping on a damaged sidewalk or at a tenant’s unit. Property damage liability would protect you.
Dog bites. If your dog bites someone, even if it’s away from your house, bodily injury liability would be used.
Slander and libel. Ever written anything negative on social media about someone or a business? You could be sued for it, as a Texas couple found out when they were ordered by a jury to pay $1 million in damages to a photographer for malicious defamation.
Shock or mental anguish.
Extra coverage for your vehicles beyond your auto insurance.
Skiing accident in Switzerland where you injure someone. Umbrella insurance follows you anywhere in the world.
There are also some exclusions in umbrella insurance. The coverage doesn’t extend to your business, where commercial coverage will be needed.
Liability from snowmobiles and golf cars are usually covered by umbrella insurance, but not from vehicles such as jet skis, all-terrain vehicles and aircraft. Those can require separate coverage.
People working on your property, such as landscapers or painters, also won’t be covered by your insurance. If employed by a business, they should have their own insurance. Make sure they do before you hire them.
Housekeepers, nannies and other full-time domestic employees at your home probably won’t have their own insurance. But they may not be covered under yours either if they’re injured at your home. You may need to buy an insurance rider for such coverage.
An occasional domestic worker who works less than 35 hours per week, such as a babysitter, should be covered by your homeowners or umbrella policies.
If your’e injured or your personal belongings are damaged, umbrella insurance won’t pay. It also won’t pay for intentional or criminal acts.
Deciding if you need umbrella insurance can be as simple as adding up your assets and seeing if your existing insurance provides enough coverage already.
But even after adding those up, an umbrella policy could be worthwhile if you face a large lawsuit. Losing a liability lawsuit could eat up all of your savings and leave you in debt for years. Getting an umbrella could protect you in a big way.
Aaron Crowe is a freelance journalist who specializes in writing about personal finance and insurance.