Umbrella Insurance 101: What It Is and 3 Common Myths Debunked
Umbrella insurance might not be something you think about often, but it can be a crucial safety net in today’s world. In this guide, we’ll cover the basics of umbrella insurance, what it does and doesn’t cover, and clear up three common myths.
What Is Umbrella Insurance?
Umbrella insurance acts as a financial backup for your backup. Officially known as a Personal Liability Umbrella Policy (PLUP), this insurance provides extra liability coverage beyond the limits of your standard policies, such as home, auto, or watercraft insurance.
If a claim or lawsuit exceeds your primary policy limits, umbrella insurance steps in to cover the remaining costs.
How It Works
Let’s say you’re involved in a car accident where the liability damages amount to $1.2 million. If your auto insurance covers only $500,000, umbrella insurance can take care of the remaining $700,000. Without it, you’d need to cover the difference out of pocket—something that could devastate your financial future.
What Does Umbrella Insurance Cover?
Umbrella insurance offers coverage in several key areas:
1. Bodily Injury Claims
If you’re found liable for an accident that results in injuries to others, umbrella insurance covers costs that go beyond your primary policy limits.
2. Property Damage Claims
It covers damage you cause to someone else’s property, like accidentally backing into your neighbor’s garage or causing extensive damage to a rental property.
3. Legal Fees
Umbrella policies often cover the costs of legal defense if you’re sued for damages that your primary policies can’t fully handle.
What Umbrella Insurance Doesn’t Cover
While umbrella insurance is comprehensive, it’s not unlimited. Common exclusions include:
- Injuries to Yourself: Umbrella insurance doesn’t cover your medical bills or damage to your personal property.
- Intentional Acts: Claims arising from intentional harm or criminal acts are not covered.
- Business-Related Claims: You’ll need separate business insurance for liability associated with your work or business activities.
- Policy-Specific Exclusions: Always review your policy for details on what isn’t covered.
How to Determine How Much Coverage You Need
Umbrella insurance policies typically start at $1 million and can increase in increments. Deciding how much coverage to purchase involves:
1. Assessing Risk Factors
Do you own a swimming pool, trampoline, or a dog? These factors can increase your liability risk.
2. Adding Up Assets
Calculate the value of your home, cars, savings, and investments. Your coverage should at least match the total value of these assets.
3. Considering Future Income
Your future earnings could be at risk in a lawsuit. Multiply your annual income by five and add that to your asset total to determine sufficient coverage.
The Cost of Umbrella Insurance
Despite its substantial benefits, umbrella insurance is surprisingly affordable. A $1 million policy generally costs between $150 and $300 annually—less than $1 a day!
Debunking 3 Common Myths About Umbrella Insurance
Myth #1: Umbrella Insurance Is Too Expensive
Fact Check: At just $150–$300 per year, umbrella insurance is an affordable way to secure millions in coverage. It’s often cheaper than many everyday expenses like coffee or streaming subscriptions.
Myth #2: Umbrella Insurance Is Only for the Wealthy
Fact Check: Lawsuits don’t discriminate. Whether it’s a car accident or a dog bite, anyone can face liability claims. Umbrella insurance provides peace of mind for everyday people, not just the wealthy.
Myth #3: My Home and Auto Insurance Is Enough
Fact Check: While home and auto insurance offer liability coverage, their limits may fall short in catastrophic situations. For instance, a $1 million lawsuit could leave you responsible for hundreds of thousands of dollars beyond what your standard policy covers. Umbrella insurance bridges that gap.
Why You Should Consider Umbrella Insurance
In today’s litigious society, umbrella insurance provides an extra layer of protection for your financial future. It’s a small price to pay for the peace of mind that comes with knowing you’re covered against life’s unexpected risks.
Take the Next Step
If you’re ready to explore umbrella insurance or have more questions, reach out to Trailstone Insurance Group. We’ll guide you through the process and help you find the coverage that’s right for your needs.
Stay safe and claims-free—until next time!