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Why Should Everyone Consider Umbrella Insurance? 

Don’t let a catastrophic accident cause money problems. Get umbrella coverage!

Umbrella insurance is important insurance to have, and particularly if you own a home and you’ve been building up a nest egg for your retirement or children’s college. 

But what the heck is it? As you might guess, it has nothing to do with the Pacific Northwest rain. 

Umbrella insurance provides beefed-up liability coverage. An umbrella policy is an affordable way to significantly increase your personal liability coverage on several different insurance policies (like home and auto) in case someone gets injured on your property or you cause an accident on the road or elsewhere. 

A man pushes off his young son on a bike while his wife and daughter clap, to illustrate the importance of umbrella insurance
Umbrella insurance can significantly increase the liability coverage on several insurance policies simultaneously at an affordable cost. Photo: Allistair F

Why consider umbrella insurance coverage?

You probably never would think that you could possibly injure another person seriously. But consider these scenarios: 

  • You hit a patch of black ice while driving to work and slide into oncoming traffic;
  • A worker slips and falls while cleaning leaves from your gutters;
  • A child crashes into a tree while sledding down the big hill on your property; 
  • Your boat falls off your trailer hitch into a car while you are backing out of the driveway. 

Unfortunately, accidents do happen and, however unintentional, they can expose you to lawsuits. An umbrella policy can protect you from financial ruin in case someone gets seriously injured on your property or you are found to be at fault for an accident that causes injuries. 

An umbrella policy will start paying claims when you exhaust the limit that is covered on another policy. It can protect you, your home and your family.

A woman washes her car with the help of her young son, to illustrate the importance of umbrella insurance.
You can’t have too much liability coverage, and umbrella insurance is an affordable way to increase your coverage significantly. Photo: New Africa/AdobeStock

What does umbrella insurance cover?

An umbrella policy provides coverage broadly. It can beef up your liability coverage on several different policies (like homeowners and auto) simultaneously. You might have several individual policies that may include homeowners’ insurance, auto, RV and boat policies. Each of these policies will have a liability limit (which can vary by policy). 

However, if you have added these individual policies to an umbrella policy, the umbrella coverage will kick in once you have exhausted the limits. For example, if you have $250,000 maximum liability limit on your auto policy, the umbrella policy will kick in once the $250,000 payout is exhausted. It will pay claims in excess of $250,000 up to the $1 million limit (or any maximum limit that your policy specifies). 

Why isn’t maximum liability coverage enough? 

The maximum liability limits on an auto or other policy provides a robust amount of coverage; however, how much do you consider a safe amount? 

Really, you can’t have too much liability coverage, and umbrella insurance is an affordable way to increase your coverage significantly. The purpose of an umbrella policy is to protect you from catastrophic scenarios. 

A standard umbrella policy will typically provide a minimum liability limit of $1 million. The maximum limits on an umbrella policy can be run in the millions (normally you buy umbrella coverage in $1 million increments).  

A man is parked in his driveway in a silver SUV, and his son is beside him in silver toy car, to illustrate the importance of umbrella  insurance.
A standard umbrella policy will typically provide a minimum liability limit of $1 million. Photo: Artem/AdobeStock

Added benefits of umbrella coverage

Aside from providing beefed-up liability coverage, umbrella coverage has other benefits. Some of these are: 

  • It can fill holes in coverage, such as providing coverage for boat rentals even if you don’t own a boat or have boat insurance; or affordably protecting your assets if your children cause an accident. 
  • Holding an umbrella policy better aligns your interests with the insurance company. Insurance companies will commonly represent you in a lawsuit if you hold a large amount of liability insurance as they will have a larger financial stake in the outcome. By contrast, if you carry a minimum amount of liability coverage, the insurer will often pay the claim immediately, and you will have to find your own legal representation if sued. 
  • Umbrella policies are a relative bargain for the amount of coverage they provide. Standard policies cost roughly $150 to $300 annually for $1 million in liability coverage. 

What is covered? 

A standard umbrella policy starts with two cars and one house. The cost will increase as you add rental properties, additional cars, motorcycles, boats or RVs or vacation liability. Some insurance companies tack on a surcharge to cover youthful drivers under the age of 25, as well as require homeowners to purchase even higher levels of auto liability insurance. Typically, it costs only roughly $25 annually to add an additional home or car.

A young couple is on the computer researching umbrella insurance coverage. As a AAA agent about what umbrella insurance covers.
An umbrella policy is easy to obtain with several coverage options, just call a AAA Washington insurance agent to ask what umbrella insurance covers. Photo: LIGHTFIELD STUDIOS/AdobeStock

How do I obtain umbrella coverage? 

Umbrella coverage is easy to obtain with several coverage options. Just call a AAA Washington insurance agent to learn your options and get an umbrella insurance quote. You usually must carry the maximum liability insurance available on your personal liability and auto policy. In some cases, you’ll have to buy up to $300,000 to $500,000 in personal liability, and $250,000 per person or $500,000 per accident on the auto policy. Remember that an umbrella policy is intended to cover only catastrophic events, and kicks in only when you have exhausted the limits of your other policies. 

How much coverage do I need? Is there an umbrella insurance calculator?

Some experts recommend multiplying your gross annual income by five, and then adding that total with your assets. So, if you have a five-year gross annual income of $500,000 and assets valued at $700,000, you should consider stepping up the umbrella limit to $2 million in coverage. 

Many people don’t expect to be involved in a situation where they are found responsible for someone else’s injury by a court of law. Unfortunately, it can happen. 

Think of an umbrella policy as an additional layer of protection for your home, net worth, future earnings and retirement savings, not to mention your kids’ college education and the money you’ve saved to support aging parents or adult dependents. It is designed to protect you from a ruinous out-of-pocket payout if you are unlucky enough to injure someone and are found liable. Call a AAA Washington insurance agent today to discuss your insurance options.  

—Written by AAA Washington staff  

—Top photo: Vasyl/AdobeStock

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