How Does Umbrella Insurance Work?

Stacked red and blue toy blocks under gold umbrella. Risk protection Concept. 3d illustration

Taking a Closer Look at Umbrella Coverage

You may have heard about umbrella insurance before, and how it can potentially help protect assets like your home, vehicles, checking and savings accounts, and even your future income.

But, how do umbrella policies work? Should you purchase one? And where can you turn if you need answers to your important questions? The professional staff at IHS Insurance Group is here to help.

Before diving in, though, let’s cover some quick basics about liability.

When Does Umbrella Insurance Pay?

Your homeowner’s policy includes liability coverage that helps pay for claims against you or a household member, including pets, which cause personal injury to someone else or damage someone else’s property.

Similarly, most of the coverages under your auto policy are solely intended to pay for damage to someone else or their stuff, such as bodily injury, property damage, medical payments, and so forth.

Imagine that you’re involved in a severe accident in your vehicle or at your home where you’re found at fault, and the total damages to their other person and their property exceed the underlying limits on your auto or homeowners policy. If you don’t have additional policies in place, you’d likely end up footing the bill.

Here’s where umbrella insurance kicks in, by paying costs related to liability claims that exceed the limits under your auto or home coverage. Every insurance carrier is different, but most umbrella policies start with $1 million in coverage and go all the way up to $10 million in $1 million increments.

Frequently, umbrella policies may even provide excess coverage, even if the underlying liability claim is denied under your home or auto policy. Of course, this means you could be out hundreds of thousands of dollars, but your umbrella will still kick in once your underlying limits are met.

For these reasons, an umbrella policy is also frequently referred to as ‘excess’ insurance.

What Does Umbrella Insurance Cover?

Compared to auto and home policies, which feature multiple coverages depending on the type of damage caused, umbrella insurance is relatively straightforward—it provides liability coverage for bodily injury, property damage, and certain personal lawsuits. Some high-level examples:

You’re involved in an at-fault car accident that totals someone else’s vehicle, sends them to the hospital and prevents them from working for several months.
While hosting a small get together, a friend slips and falls at your home, resulting in a lengthy hospital stay and several surgeries.
Your dog bites a delivery person on their way to your front door, resulting in a life-threatening infection and time off work.
A stranger walking past your rental property trips and falls over the broken sidewalk caused by an old-growth tree in the front yard.

Umbrella insurance can also provide coverage if you’re involved in a lawsuit related to slander, libel, false arrest or imprisonment, malicious prosecution, and shock or mental anguish.

However, umbrella insurance does not cover your injuries or damage to your personal property, criminal or intentional acts, liability assumed under a contract, claims occurring in the course of business, professional liability, or malpractice.

What Does Umbrella Insurance Cover?
Umbrella Insurance *Does* Cover	Umbrella Insurance *Does Not* Cover
Liability coverage for bodily injury, property damage, and certain personal lawsuits. Includes slander, libel, false arrest or imprisonment, malicious prosecution, shock, or mental anguish.	Your injuries or damage to your personal property Criminal or intentional acts Liability assumed under a contract Claims occurring in the course of business Professional liability Malpractice

How Much Does Umbrella Insurance Cost?

As with any other type of insurance, how much you pay for umbrella coverage depends on crucial factors like the carrier, your desired coverage limits, your assets, your claim history, insurance score, and more.

With this said, in general, you might expect to pay less than $300 per year for $1 million in excess coverage. Rates can vary widely as you increase from there, although you won’t necessarily pay twice as much for $2 million in coverage as you would for $1 million.

According to the Insurance Information Institute (III), “the next million will cost about $75, and $50 for every million after that.”

What Are The Underwriting Requirements for Umbrella Insurance?

Like the price, each carrier can have a different set of eligibility criteria when issuing umbrella insurance. And typically, the higher your requested limits, the stricter the underwriting criteria will be.

With this said, carriers will require that you carry minimum underlying limits on your home and auto policies (300K liability for home, and 250/500/100 for auto, typically). They will also usually shy away from:

High-profile clients
An excessive number of high-performance vehicles
Several home or auto claims in the past five years
Insuring a residence premises where farming or ranching takes place
Insuring residence premises where clients regular visit in the course of business (especially risks like home daycare)
Drivers over the age of 75 or under the age of 25, who also have accidents or citations

How Can You Learn More About Umbrella Insurance?

When considering whether or not you should purchase an umbrella policy, as well as total coverage limits, consider your existing assets like checking and savings account balances and the property you own (your residences, along with rental dwellings). You will also want to consider your future earnings potential.

Here’s the truth: We understand that deciding whether or not umbrella insurance makes sense, as well as the level of coverage you should purchase, can quickly become overwhelming. That’s why the IHS Insurance Group team is here to put our decades of combined experience to work to help you find the coverage you need at a price you can afford.

Need a FREE Quote or have questions regarding Umbrella Insurance Coverage? We have three convenient ways to reach us:

If you prefer to talk to a licensed agent directly, please call (866) 480 5063.
If you prefer to fill out a quick form and have an agent get back with you at your convenience, use the GET A FREE QUOTE.
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