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UPDATED: May 7, 2018
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Everyone needs umbrella auto insurance coverage to protect him or her from lawsuits. These days, people don’t think twice about suing someone else.
It could be something major or it could be over something relatively insignificant. These lawsuits can cause you to lose your personal assets if you are not protected.
Umbrella policies used to be something only wealthy people purchased in order to protect their assets. Now, because it is impossible to know how much a plaintiff will be rewarded by a judge, umbrella policies are being recommended for drivers in all income brackets.
It is worth at least checking out and weighing the pros and cons.
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Liability Auto Insurance
Before you can even consider purchasing umbrella insurance coverage, you need to have liability coverage on your auto policy.
Generally, having liability coverage isn’t an issue as 49 of the 50 states in the U.S. require liability coverage to be carried by drivers.
Liability coverage includes damage payment for property damage done to the other party and bodily injury to members of the other party. Your coverage is used when you have been the cause of the accident.
Liability does not cover any damage that is done to your vehicle or any injuries that you or your passengers may have.
Included in the states’ requirements are liability limits. A limit refers to the maximum amount that your insurance provider will pay for the damages.
Once this amount has been reached, their financial responsibility is done and the remaining amount falls on your shoulder. The limits for liability coverage vary per state but in general, they are pretty low.
If you are unsure as to what the requirements are for your state, contact your state Department of Insurance through the National Association of Insurance Commissioners.
If you just carried the mandated liability limits there is a pretty good chance that you would end up paying some money out of your own pocket. With a more serious accident that had multiple injuries, you could be facing quite a hit to your finances.
For this reason, it is highly recommended to carry higher limits than what the state requires of you. The Insurance Information Institute recommends that you carry $100,000 in liability for injuries to one individual and $300,000 for injuries to all from the accident.
Umbrella Insurance Coverage Information
Once that amount is exhausted, you are financially responsible for the rest. An umbrella insurance policy kicks in once your liability limits have been reached.
A personal umbrella policy is an additional layer of protection in the case of a lawsuit against you. Damages will be paid for up to the limits that you have purchased on the policy.
It is called umbrella coverage because it protects you from a variety of things:
- damages involving your vehicle
- damages to your home
- protection for other things you own
Double check with your insurance provider, but some companies require that you have not only an auto insurance policy with them but a homeowner’s policy in order for you to purchase an umbrella policy.
Having an umbrella policy is very advantageous, especially if you have a lot of assets.
This policy, depending on the limits you have purchased, will help protect you from being sued for large amounts of money and from having any of your precious assets taken away from you.
Amount of Umbrella Insurance Coverage Recommended
In general, one million dollars of umbrella coverage is recommended. This is true even if you don’t have one million dollars in assets. If you have assets worth millions of dollars, you should purchase more than that.
In fact, if you have more than one million dollars in assets or earn a salary of over $100,000 you should have at least two million dollars in umbrella coverage.
If you own rental property, you should probably purchase three to five million dollars of coverage.
Most insurance companies will allow you to purchase up to five million dollars in additional umbrella coverage. Very wealthy people should check with specialty insurance providers for higher limits of coverage.
Keep in mind that the amount of umbrella coverage you get should be related to your level of risk. There is no need to waste money on a high limit umbrella policy if you have few assets and are considered low risk.
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Requirements Needed for Umbrella Coverage
In order to purchase umbrella auto insurance coverage, you are required to carry certain limits on your auto policy.
Although you are required by the majority of states to carry a minimum amount of liability limits, you will need to raise those limits in order to get an umbrella policy.
Check with your insurance company because each one may have different requirements.
The majority of insurance providers would like you to have around $250,000 in liability insurance before you will be able to purchase a one million dollar umbrella policy.
If you are looking for a homeowner’s policy, you should carry around $300,000 of liability on your homeowner’s liability.
Cost of Umbrella Insurance Coverage
The fear of high premiums is a possible reason why you are against purchasing an umbrella policy. The good news is that in many cases it doesn’t cost that much to add it to your current policy.
For the recommended one million dollars in coverage, it should only cost you between $150 and $300 for a yearly premium, according to the Insurance Information Institute.
If you have a large number of assets and choose to purchase even more umbrella coverage, it costs even less. The second million in coverage usually costs around $75 and each subsequent million is around $50 per year.
Case against Umbrella Coverage
Although an umbrella policy is highly recommended for most drivers, there are cases when it isn’t as necessary.
When debating whether to purchase additional coverage with an umbrella policy, evaluate what your financial situation is, how many assets you have, and what the consequences may be if you didn’t get it.
One thing to evaluate is how much risk you may have for a lawsuit. If you have situations that will increase your risk of being sued, an umbrella policy is a good idea.
If you rent an apartment, house, or condominium, your need for umbrella insurance is lower because there isn’t a house to go after by any party who may sue you.
Look at other assets such as the following:
- savings accounts
- retirement funds
If you have few or none of these, you don’t have much that can be taken from you and an umbrella policy may be avoided at this time.
In regards to driving, some risks include driving a long commute on a daily basis and having a teenage driver on your policy.
Teens present a greater risk because they are involved in almost three times as many accidents as other drivers, according to the National Highway Traffic Safety Administration.
If you don’t have a teenage driver in the house or if you don’t drive that much, you may not need to have an umbrella policy.
Budget is a big reason why many drivers do not have an umbrella policy. Even though umbrella insurance is not that expensive, the expense is not worth it to many, especially with the economy as it has been.
For drivers who can only afford the minimum basic insurance, it isn’t even possible to purchase an umbrella policy, as the minimum liability limits aren’t high enough to be eligible.
The additional monthly expense of umbrella insurance is not an excuse to forgo it if you do have assets.
At the end of the day, if something unfortunate did occur and you happened to be sued, you would possibly lose most of your cash savings or you would have to give up some of your assets that are worth money.
The small price to pay for umbrella coverage is worth protecting them.
Umbrella Insurance Coverage for Businesses
If you own your own business, you should seriously consider getting commercial umbrella coverage. This is true whether your business involves a lot of driving and transportation or if it is a business with a storefront.
There are too many opportunities for accidents and too many people who are quick to sue to take the chance to not purchase it.
Unfortunately, if you have a personal umbrella policy you will not be covered for your business. Most insurance companies that offer commercial policies such as commercial vehicle coverage will be able to provide an umbrella policy for you as well.
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