What Is Umbrella Insurance and What Does It Cover?

Homeowners insurance acts as a layer of protection against financial loss. But it's important to consider whether a standard homeowners policy is sufficient. Homeowners concerned that they may not have enough coverage have the option of adding umbrella coverage to their policies. Here, we'll cover what homeowners umbrella insurance is, how it works, what it covers, and if the average homeowner needs umbrella coverage.

What is umbrella insurance?

Umbrella insurance coverage provides an extra boost of protection, above and beyond the existing limits of other policies. For example, an umbrella policy can provide for:

• Property damage not normally covered
• Lawsuits
• Personal liability
• Injuries that exceed typical limits

While a homeowner normally has some level of coverage for each of these losses, it may not be enough to fully compensate them if anything goes wrong.

How does an umbrella insurance policy work?

Imagine you're a fourth-grader dealing with a bully on the playground. For the most part, you can handle the bully's mouthiness on your own. It's only when the bully pushes you that you need backup. Fortunately, you have a sixth-grader looking out for you, making sure nothing bad happens. That's what the best umbrella insurance policy is -- extra protection when you need it most.

Example

Let's say you have friends over and their kids are playing in your backyard. A neighborhood dog wanders into the yard, bites one of the children in the face, and you rush the child to the hospital. When it becomes clear that the child faces plastic surgery and extensive medical bills, the parents sue you for damages. Because you have umbrella coverage, you have additional liability coverage that handles the cost.

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What does umbrella insurance cover?

Umbrella insurance is there to make sure nothing "falls between the cracks" and that the homeowner is protected. Here's some of what it covers:

• Liability coverage, which can help protect a homeowner's assets in the event of a lawsuit (like the one resulting from a dog bite)
• Protection against claims like libel and defamation of character.
• Attorney fees and miscellaneous charges associated with a lawsuit
• Landlord liability

Important note: Umbrella coverage does not just cover the homeowner, but every member of their family.

What is not covered by umbrella insurance?

While umbrella insurance is a great way to fill gaps in coverage, it does not cover everything. Typically, this is what isn't covered:

• Personal belongings
• Business losses (if, for example, you're keeping work samples at home or run a home business)
• Intentional criminal acts
• Written or oral contracts

How much does umbrella insurance cost?

According to the Insurance Information Institute, a homeowner can buy a $1 million personal umbrella liability policy for $150 to $300 per year. When choosing homeowners insurance, it's important to factor in umbrella insurance costs.

Do I need umbrella insurance?

The short answer is "probably." Unless a homeowner has enough cash available to see them through an unexpected injury or lawsuit, umbrella insurance can mean the difference between financial solvency and bankruptcy.

How much umbrella insurance is recommended?

Normally, once a homeowner has a policy with a liability limit of $300,000, an insurer will recommend an umbrella liability insurance policy for $1 million of additional coverage. For a homeowner worried that might not be enough, it's good to ask an agent directly, "How much umbrella insurance do I need?"

How to buy umbrella insurance

If a homeowner prefers to stay with their current insurance company, they should call their agent and find out how much personal umbrella insurance will cost. If the price works with their budget, it's just a matter of adding it to their existing coverage. Homeowners in the market for a new insurance company can call an independent insurance agent to help them find the most competitive home insurance rates, including umbrella coverage. Any reputable insurance agent will be more than happy to provide customers with an umbrella insurance quote.

The tricky thing about life is our inability to know what's going to happen next, and that's where umbrella insurance comes in. When liability protection through a standard policy is not enough to pay the bills, a personal umbrella policy can cover excess liability. At an affordable coverage rate, the extra liability coverage offered by umbrella insurance coverage is more than worth the extra cost of $12-$25 per month. It's there if it's needed but unlikely to break the bank if it's not.