Standard homeowners policies include liability coverage to help pay for medical expenses and legal costs when someone is injured in your home or if you are responsible for damage to a neighbor’s property. But some policies don’t provide enough protection, especially if your home has features that may increase your liability risk.
Umbrella insurance provides a second layer of liability protection. An umbrella policy picks up where your limited liability coverage ends. You can purchase an umbrella policy with $1 million or more in liability protection to ensure your assets remain safe when disaster strikes. Best of all, umbrella insurance is relatively inexpensive and offers an affordable way to maximize your security.
What is umbrella insurance, and how does it work?
Homeowners’ liability typically covers the medical expenses of people outside your household when they are injured on your property. If the victim sues you, your liability coverage will help pay for their legal costs as well. Liability coverage also pays for damage to someone else’s property when you are at fault. For example, if your lawnmower throws a rock and breaks your neighbor’s window, your liability coverage will help pay the repair bill.
Umbrella insurance provides additional protection when your homeowner’s liability coverage is insufficient. It is designed to cover costs that exceed the liability limits of your homeowner’s insurance policy.
Most standard homeowners insurance policies offer liability coverage, defaulting between $100,000 and $300,000. Typically, insurers allow you to increase the limit of your liability coverage. Still, some homeowners need more protection than standard liability can offer.
For example, if you own a swimming pool and like to entertain guests, you could face severe medical and legal costs if someone is seriously injured or drowned. If you need $1 million or more in liability protection, you’ll need a comprehensive insurance policy.
A coverage policy can also protect the property you use but do not own. For example, if you rent a house for the summer holidays and accidentally burn down the deck while barbecuing, your umbrella policy may pay to rebuild it.
What does the umbrella policy cover?
An umbrella policy can save the day when you’re faced with an expensive liability, but it’s essential to understand precisely what it does and doesn’t cover. Most umbrella policies will cover:
- Bodily Injury: Entertaining guests in your home increases the risk of an accident. If a guest falls down the stairs and breaks their leg, liability coverage will likely cover medical costs. But if the victim falls into a prolonged coma and then sues you for pain and suffering, she will probably have to rely on the additional coverage provided in her insurance policy.
- Owner’s Liability: Some umbrella policies provide a certain level of coverage for homeowners. For example, if you rent a garage apartment to a tenant injured when the apartment’s balcony collapses, your umbrella coverage can help pay for medical expenses and legal costs.
- Property Damage: Standard homeowners insurance can cover most property damage disasters. For example, if a branch from your tree falls and breaks your neighbor’s fence, your regular homeowner’s coverage will cover the repairs. But suppose the entire tree crashes into your neighbor’s home, causing hundreds of thousands of dollars in losses. In that case, you may have to rely on your umbrella coverage to pay the cost of restoring the house to its former state and replacing personal property. You are damaged, such as furniture or appliances.
- Personal injury protection covers legal expenses when someone sues you for defamation, slander, or wrongful eviction. Liability coverage in some homeowner’s policies provides some protection against personal injury. If the cost of a lawsuit exceeds your home insurance policy limit, your umbrella insurance will kick in to help cover the additional costs.
- Generally, it covers beyond your typical policy limits.
What is not covered by a general policy?
There are a few types of damage that are not covered by umbrella policies:
- Business losses: An umbrella policy will not cover your home office property. In the same way, umbrella insurance will not cover claims made against your home business. However, you may purchase commercial insurance that includes liability coverage.
- Losses caused by criminal acts: Like the liability coverage in your home insurance policy, an umbrella policy will not cover losses caused by illegal activities. For example, if a policyholder operates an illegal home fireworks business and an accidental explosion burns down a neighbor’s home, the insurer will not pay a claim.
- Personal property: Your homeowner’s policy’s property coverage will pay to replace your belongings, such as clothing and furniture, after a covered loss, but an umbrella policy will not. Umbrella insurance only covers the personal belongings of others when you are at fault for a loss.
- Oral or written contracts: If a contractor sues you for breaking the terms of a verbal or written agreement, your umbrella policy probably won’t cover your legal fees. Likewise, if a legal dispute involves a home business, the policy will not pay court costs or attorney fees.
- Before you buy a policy, make sure it will cover the things you want protection for.
How much does umbrella insurance cost?
Many companies offer umbrella insurance as optional coverage. You can often add umbrella coverage when you purchase a homeowners insurance policy. If you already have a policy, ask your agent if the insurer sells the range.
Some premium homeowners policies allow you to increase your liability limit to $1 million or more, which can eliminate the need for blanket insurance.
A $1 million umbrella policy costs between $150 and $300 a year. However, the cost of insurance varies by location, along with the age and construction of the home, safety and security features, and age and claims history.
Is umbrella coverage worth it?
Most homeowners can benefit from the additional liability protection of an umbrella policy.
Although most insurers allow you to increase the limits, you may not have enough coverage to pay all the medical bills a guest may have.
In general, you should consider an umbrella policy if your home or property has any item that poses higher liability risks. Homes with amenities like hot tubs, pools, trampolines, and treehouses should have umbrella coverage because they increase your liability risk. Even if you don’t frequently entertain, an uninvited visitor can enter your property and suffer an injury, for which the law may hold you liable.
If your property has any of these features, ask your insurance agent if your home insurance policy provides adequate protection. Also, ask about precautions you should take, such as adding a fence around the pool, installing a pool alarm, or adding a lockable cover to a hot tub. Your agent will most likely advise you to purchase an umbrella policy.
Owners who have a home office where they see clients may also need an umbrella policy. Some standard homeowners policies do not cover the medical and legal costs associated with a business associate visiting your home office. When asking about a protection policy, make sure it covers this type of risk. If you don’t, you may need to purchase business insurance.
If your yard has tall trees, you may need an umbrella policy. Trees often fall during storms or falls due to rot or saturation of the soil. A fallen tree can cause severe damage to a neighbor’s home, so protect your assets with umbrella insurance.
In some cases, increasing the limit on your standard home insurance policy will provide enough coverage.
Excess liability policies offer an alternative to general coverage insurance. You can increase your liability above the maximum limit allowed on your standard homeowner’s insurance policy with an additional liability policy. However, excess liability policies only cover the same risks as your standard liability coverage. Many general coverage policies cover more threats, offering more protection.
How much does umbrella insurance cost?
You can buy a million-dollar umbrella policy for a few hundred dollars a year. The cost of a procedure can depend on many factors, including the safety features of your home, its age and construction, and your history of insurance claims.
Should I buy comprehensive coverage if my house has a swimming pool?
Home features like swimming pools, fire pits, hot tubs, and treehouses increase your liability risk. If you or a family member is injured on your property, you can trust your health insurance to help cover the costs. But if a guest is disabled in your home, you’ll need adequate liability coverage. Umbrella insurance can help cover medical expenses and legal fees.
My home insurance policy includes liability coverage. Why do I need umbrella insurance?
Liability coverage only provides a limited amount of protection. Most standard homeowners policies provide default limits of $100,000 to $300,000. You can usually increase your liability limit, but it won’t provide the level of coverage that an umbrella policy does. Umbrella insurance can give a million dollars or more of coverage, and many cover more risks than a standard homeowners insurance policy.