What is Umbrella Insurance and How can it Protect You?

What is Umbrella Insurance and How can it Protect You?

You’ve got insurance for home, auto, and life. So you’re all set, right? Not so fast. If you are declared at fault for an accident, you could find you’re either not covered, or your coverage limits are not sufficient.

This is where umbrella insurance comes in. This coverage protects you over and above the liability coverage that’s part of your existing homeowners and auto insurance. It may also cover the legal fees to defend you from claims of personal injury and property damage that could arise due to accidents.

According to the USA Today: “Unfortunately, umbrella insurance is one of the least known and most underused types of liability coverage.”

Don’t assume the liability coverage in your home and auto policies is enough. Most home insurance only covers claims up to $300,000 for personal liability. Typically for bodily injury, auto policies provide up to $250,000 per person and $500,000 per accident. Property damage tends to be lower, at around $100,000.

CBS News warns: “While most states require you to have mandated minimums of liability for auto insurance, they’re usually quite low and don’t provide the protection you need because, depending on the situation, a lawsuit can involve damages of a million dollars or more.”

According to the New York Times, the importance of an umbrella policy is too often underestimated: “Banks make people buy home insurance to get mortgages, and states require drivers to buy auto insurance. But no one mandates buying a policy that could turn out to be the most important part of your insurance package.”

What does Umbrella Insurance Cover?

While the list of potential situations covered by umbrella insurance exhaustive, we can at least provide some examples. The following is cited from CBS News: “Let’s say you’re throwing a big party at your home, where alcohol will be served. With the risk of personal accidents or guests driving home after drinking, you could be open to the risk of getting sued. You may think you’re safe because you hired a bartender, served food, ended the party at a reasonable hour and offered taxi services and designated drivers. But that’s not going to protect you in the event of an accident for which you’re held liable.”

Other examples may include, but are not limited to:

  • A friend is on your back deck and it suddenly collapses, resulting in bodily injury
  • A postal worker falls down your front stairs and breaks a leg
  • Injuries caused by your child or pet
  • Legal costs if you’re a victim of defamation of character, libel, slander, or false arrest
  • Auto liability claims if you’re at fault in an accident outside of the US
  • You rent a boat or jet ski on vacation and cause an accident
  • You’re sued for decisions made as a volunteer member of a nonprofit board

DMV.org notes, because umbrella insurance is a form of liability insurance, it does not cover:

  • Your own medical expenses
  • Losses to your property

How much Coverage do you Need?

In general, CBS recommends enough coverage to at least cover your net worth. Furthermore, they state the average cost for a $1 million policy is $200 annually, which can be seen as a relatively low price for the amount of coverage.

Think you umbrella insurance is unnecessary because you don’t have $1 million to lose? This could be a very costly false assumption, as you can be sued for more than just what you have in the bank.

The New York Times warns: “Here’s the nightmare: Your car skids. You crash into a Mercedes with a highly paid business executive at the wheel. He’s hurt so badly he cannot return to work. A jury awards him millions of dollars and you have to pay it. You’re wiped out financially. The court takes your savings, goes after your home and, for decades, requires you to give up a part of your salary.”

However, USA Today notes that employee retirement accounts and IRAs are usually protected under federal laws even without umbrella coverage. So your retirement accounts are likely safe even if you’re bankrupted by a legal case.

Where can you get Umbrella Insurance?

Many insurance companies offer umbrella coverage. But a local community bank like the Bank of Southside Virginia may be a good place to start. They pride themselves on taking the time to talk you through the ins and outs of financial decisions.

While the Bank of Southside Virginia does not directly offer umbrella coverage, they partner with Bankers Insurance, who have been offering insurance services to local communities for over 100 years.