With over $1.3 trillion paid in premiums annually, the ever-growing U.S. insurance industry is among the first to recover from the coronavirus pandemic, and not without reason. The core insurance products – health, home, and auto insurance – are considered indispensable by most Americans and are often compulsory.
But what about extra insurance, the one that would cover you if something unexpected were to happen and incur losses higher than expected? Would you love to have a thick additional protection layer? More importantly, is umbrella insurance worth it?
Though the answer seems obvious, most people underestimate the value of umbrella insurance, which sometimes leads to dire consequences.
In many cases, umbrella insurance can save the day, but let’s not get ahead of ourselves. First, let’s start with what it is and how it works.
Whether you own renter’s insurance or any other type, it may not always be enough to compensate for your financial losses due to liability claims. However, umbrella insurance can help you with it. A type of liability insurance, it provides liability coverage. In other words, it covers liability claims, whereas, for example, the damage to your property and cases alike will not be covered.
The umbrella covers various liability claims, from car accidents to slander to false imprisonment. Here are a few examples of what it can help you with:
Most packages cover from $1 million to $5 million, allowing you to choose the coverage you’d feel safe with. Besides, as you might have noticed, your best umbrella insurance will cover not only you as the owner of the policy but also your family members or your household, making it even more valuable.
It might be reasonable to purchase umbrella insurance if you have kids that drive a lot, or you frequently accept guests, or just if you want to ensure you’re well protected from all significant mishaps.
No insurance policy in the world can cover everything, and personal umbrella insurance is no exception. While providing coverage for many specific cases – including libel, slander, defamation, false arrest/detention/imprisonment, malicious prosecution, invasion of privacy, wrongful eviction, and more – an umbrella liability policy won’t cover the following:
It may seem like a long list, but the truth is, personal umbrella insurance covers much more than it doesn’t, making it one of the best tools to mitigate the risks coming from large-scale unexpected unwelcomed events.
As for the car accident case described above, your umbrella insurance would cover the additional expenses on top of your regular auto insurance policy, leaving your assets and possibly your retirement account intact. However, you still have to be aware of the nuances of umbrella insurance:
However, there aren’t too many pitfalls when purchasing your best umbrella insurance package.
As is always the case with insurance, the final price of it will depend on many factors, including your location, the amount covered by your standard policy, and how risky it is to insure you. For example, the more cars or houses you cover with your umbrella insurance, the more it will cost.
That said, umbrella insurance is still relatively cheap. More often than not, it covers at least $1 million for the price of up to $300 a year. And if you want to increase the coverage, you can pay an extra $50 ($2 million for up to $350, $3 million for up to $400, etc.).
You might wonder why it is so cheap. Still, the answer is on the surface: chances are your basic insurance will be enough to cover the expenses, leaving only a slim chance that your umbrella insurance will have to step in. On that note, most auto insurance packages cover at least $25,000 per person or twice as much per accident. And if your insurance company thinks that your basic coverage is insufficient, it will employ a higher premium to compensate for the risk.
If you have a limited budget, you can increase your basic coverage or go for an endorsement – modification and additions – to your standard package. Both approaches can help you improve your liability coverage at the expense of an increase in your premium. However, they still won’t cover the specific cases that can be covered by umbrella insurance.
Without a shadow of a doubt, the answer to the notorious question ‘is an umbrella policy a good idea’ is a definite Yes. Protecting you from the devastating consequences of liability claims or judgments, an overarching package of umbrella insurance will also make your life easier and safer.
After all, only a couple hundred dollars a year are worth limiting the risk of liability claims and boosting your certainty in protection against the unexpected.
Oleksandr is an expert in deep research. He covers various insurance topics across verticals, adopting to every local law.