Most of us already have various policies to protect our valuables— homeowners or renters insurance, auto insurance, and perhaps life insurance to safeguard your loved one’s financial security. But have you thought about how you’d handle a costly accident or lawsuit that exceeds your standard insurance limits? This is where umbrella insurance comes in. Often overlooked, an umbrella insurance policy is a powerful tool for protecting your assets when you need it most. As with many kinds of insurance, you hope you never need to use it, but it’s a smart and relatively affordable investment to preserve your hard work from unexpected claims.

what is umbrella insurance?

Unlike standard home and car policies, umbrella insurance is not used to cover damage to your property or your own medical bills. Umbrella insurance provides additional liability coverage in case someone is injured on your property or you accidentally cause injury and/or damage to another person or their property.

For example, Ohio drivers are required to have insurance that covers a minimum of $25,000 for injury/death of one person, $50,000 for injury/death of two or more people, and $25,000 for property damage in an accident. Many people have policies that simply meet the minimum requirements without knowing they’re exposing themselves to great risk. A $25,000 payout for a serious injury— let alone death— is not enough in many cases. Therefore, the injured party may pursue legal action to cover their remaining medical bills, lost wages, or personal damage that exceeds the primary insurance coverage. While some retirement accounts are protected from creditors, a lawsuit could force you to liquidate your other assets or you could have your wages garnished to satisfy a judgment against you.

how much does it cost?

You may need to increase the liability on your current auto policy when obtaining umbrella insurance. Many insurers require car insurance with a minimum of $100,000 in property damage and $300,000 in bodily injury before the umbrella coverage kicks in. These requirements vary between companies. 

The cost of umbrella insurance will depend on your specific circumstances, but the average cost for a $1 to $2 million policy is $380 per year, according to Trusted Choice. Some of the factors that will determine your coverage needs and costs are net worth, location, credit history, driving records, teen drivers, risk profile, and the company providing your coverage.

what kind of claims are covered?

Umbrella policies cover a large range of potential liabilities. Someone could be injured on your property at any time, especially if you have a pool, access to a larger body of water, trampoline, balconies or high deck. It can also protect you against injuries sustained by animals on your property, such as a dog bite or horse riding accident. Umbrella insurance may provide liability to landlords in the event of tenant injury. As we previously discussed, it offers much higher auto liability than standard policies. It may also provide coverage for personal injury, such as being sued for libel or slander. These policies usually pay for legal fees, as well.

what isn't covered?

Criminal acts, such as intentional harm to an individual or their property, won’t be covered by this type of policy. Contract breaches are likely not covered. For example, if a contractor sues you for non-payment. Business losses or legal fees for lawsuits filed against your business are not covered, with the possible exception of a business that is covered by the current homeowners policy. Damage to your own property would still solely be covered by your homeowners or car insurance. To reiterate, umbrella insurance provides additional liability coverage when you are at fault for someone else’s loss. So if your home sustains wind damage or you’re in a car accident that is not your fault, these scenarios wouldn’t fall under the scope of umbrella insurance. 

Findings from Trusted Choice show that 1 in 5 people with considerable wealth do not have umbrella coverage. Additionally, 13% of personal injury settlements exceed $1 million. At an average monthly cost of just over $30 per month, umbrella insurance is a no-brainer if you want the peace of mind that your assets are protected. We all make mistakes— don’t let yours cost you your life savings.