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Why You Need Umbrella Coverage

November 18, 2020

Umbrella insurance is a type of personal liability insurance that covers claims in excess of regular homeowners, auto, or watercraft policy coverage.

Simply put, if you’re sued for damages that exceed your primary insurance liability limits, an umbrella policy helps pay what you owe.

And it’s not just for high net worth individuals. Umbrella insurance provides protection against claims and lawsuits from accidents you’ve caused and shields your future income from garnishment.

After all, we live in a very litigious world.

Let’s look at a few scenarios that you could depend on personal umbrella liability coverage:

  1. Your teenage son gets into a car accident, and the cost of injuries to other drivers is above your auto insurance liability limit.
  2. A house guest falls down your stairs and sues you for her medical bills plus pain and suffering, exceeding your homeowner’s insurance liability limit.
  3. A restaurant sues you for writing a negative review online.

Umbrella insurance is most often purchased by people who have a great deal of assets to protect or a greater likelihood of being sued. It might be worth purchasing umbrella insurance coverage if you:

  • Own items that can lead to injury lawsuits (pools, trampolines, firearms, or dogs)
  • Are a landlord
  • Have an inexperienced driver in your house
  • Coach kids’ sports
  • Frequently host parties in your home
  • Serve on the board of a nonprofit
  • Regularly post reviews of products and businesses
  • Participate in sports where you could easily injure others (hunting, skiing, or surfing)
  • Are a public figure

According to the Insurance Information Institute, Umbrella insurance premiums range from $150-$300 a year for $1 million base umbrella policy.  You can expect to pay $75 for the next million and $50 for each additional million dollars of coverage after that. Rates can vary by company and are typically based on the number of exposures; i.e. homes, vehicles, watercraft, youthful operators, etc.

So, how much do you need?

The general rule of thumb is to have enough liability insurance to cover your net worth. Here’s an easy method for calculating net worth. Simply add up all that you OWN and deduct all that you OWE. Note: IRAs and 401Ks are usually excluded from these calculations.

Next, take a look at the liability insurance you already have through your existing policies and buy enough umbrella insurance to make up the difference.

Insurers typically sell umbrella insurance in million-dollar increments starting at $1 million. Most umbrella policies stop at $5 million, but some go higher. Travelers Insurance and Safeco Insurance, for instance, offer umbrella insurance up to $10 million, and Chubb’s umbrella limits go up to $100 million.

Umbrella insurance isn’t just for personal use; commercial umbrella policies cover accidents that occur in company vehicles or injuries that arise on business premises. Commercial insurance is a good option for small business owners who wish to protect against monetary damages resulting from third-party claims.

KEY TAKEAWAYS. Umbrella insurance:

  • protects not just the policyholder, but also other members of their family or household
  • is not only for high net worth individuals
  • covers injury to others or damage to their possessions
  • is quite affordable for the peace of mind

Call an Avery trusted advisor today to review your current liability coverages and discuss if an umbrella policy is right for you.

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