“Do I Need Umbrella Insurance?”

Umbrella insurance is an important risk management tool, particularly for people who have wealth, income, or future income potential.  Additionally, it’s cheap relative to most other types of insurance!

I’m always amazed at the number of people who forgo umbrella insurance or have low limits of umbrella insurance coverage when it could potentially protect your financial future from our lawsuit-happy society.

Whether you already have umbrella insurance or decided not to buy it, this article is for you. It will help you better understand why umbrella insurance is important, what it covers, and what it doesn’t cover. It will also help answer the question of “do I need umbrella insurance?”

What is Umbrella Insurance?

Umbrella insurance is additional insurance that provides extra protection on top of your other policies, such as auto, home, and watercraft insurance.

Auto, home, and watercraft insurance have certain limits in how much will be covered, and umbrella insurance provides extra insurance beyond those limits. Said another way, when those limits are exhausted, umbrella insurance could step in and cover claims in excess of those limits.

It can provide extra coverage for lawsuits, injuries, and property damage.

For example, if you are in an auto accident where you are at fault and you are sued, an umbrella insurance policy could help pay for an attorney to defend you and pay for liability claims if your auto insurance limit is reached.

Or, if a guest is over at your house, falls, and sues you for medical bills and lost wages above your homeowner’s liability limit, an umbrella insurance could help cover the bills, lost wages, and attorney’s fees to defend the lawsuit.

What Does Umbrella Insurance Typically NOT Cover?

Umbrella insurance doesn’t cover everything. It picks up where your other limits leave off, which means if your auto, homeowners, or watercraft coverage don’t include coverage for something, your umbrella insurance likely won’t either.

As with anything, read the fine print and ask your insurance agent lots of questions to understand what it will and won’t cover.

Commonly, it won’t cover:  Business activities ; Serving on a board ; Intentional acts ; Criminal acts ; Your injuries ; Damage to your personal property

Read the fine print. Ask your agent lots of questions. You don’t want any surprises about what will be covered.

Do I Actually Need Umbrella Insurance?

The key question is: “Do I need umbrella insurance?”  If only we all knew with certainty!

Do any of us really need auto, homeowners, or watercraft insurance?

If we never have an auto accident and it wasn’t legally required in many states, one could argue auto insurance was never needed.  The same goes for homeowners insurance. If nobody is ever injured at your house, it never burns down, and nothing ever goes wrong, one could argue homeowners insurance was never needed.

Unfortunately, that’s not how life or insurance works.

Insurance exists to help protect you from low probability, high-loss events, such as your home burning down.   Statistically speaking, the odds of needing to use umbrella insurance is low, but if you need it, you often really need it.

I can’t say for certain whether you need umbrella insurance, but if you have high income, expect to have high income in the future, or have significant assets, those are good reasons to own an umbrella insurance policy.

Final Thoughts

Umbrella insurance can be a key coverage for financial peace of mind.   Although many people don’t have it, consider what would happen if you got in an accident tomorrow and injured someone.

Would your existing coverage be enough?  What would it feel like if you needed to hire an attorney to defend you from a lawsuit? What would happen if you faced a personal injury settlement for millions of dollars?

Umbrella insurance can help in a variety of situations and is inexpensive. For a few hundred dollars per year, you could add extra protection and potentially sleep better knowing everything you have worked for is well protected.