You have liability coverage with your home and auto insurance policies, but is it enough? An umbrella policy is an affordable way to extend the coverage on both policies and protect against some new risks as well. Here’s how to choose.
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What’s Umbrella Insurance?
Do you remember when you were small and two people — or even more — could fit under an umbrella? An umbrella policy earns its name from its ability to protect more than one policy. Umbrella insurance is excess liability insurance, which means it provides extra coverage.
Liability is everywhere. It’s on the roads as we travel. It’s in our homes and backyards. It’s in our volunteering activities. Liability follows us around wherever we go and even where there is no liability, there’s still a risk of liability lawsuits, which can be expensive to defend.
Liability also comes in different forms and refers to when our actions or inactions cause someone else physical or financial harm. For example, your auto insurance policy has both bodily injury liability coverage and property damage liability coverage. Bodily injury coverage applies if someone else is injured in an auto accident, while property damage liability helps cover the cost of damage to the things we might bump into with our cars (other cars, stop signs, buildings, etc.).
Your home insurance also covers bodily injury claims and property damage claims. If you decide to finally cut down that old tree in the backyard and it falls on the neighbor’s garage, your property damage liability coverage comes to the rescue. However, the liability coverage from your home insurance policy can’t cover auto accident liability — and vice versa.
For both auto and home insurance, there’s a maximum coverage limit for liability. This amount varies by insurer or by state, but it may not be enough to protect you against the worst-case scenario. That’s where an umbrella policy comes in. The umbrella policy sits above the auto and home insurance policies and can cover losses that exceed the limits of either policy.
For example, if you have an auto policy with $250,000 in bodily injury liability coverage and a home insurance policy with $300,000 in bodily injury liability coverage, a $1 million umbrella policy can extend the coverage limits to $1,250,000 and $1,300,000, respectively — and the increased coverage is more affordable than you might think.
Difference Between Umbrella Insurance and Other Types of Insurance
Many umbrella insurance policies add a new type of coverage called personal injury protection, which differs from bodily injury because it deals with cases of defamation, like slander and libel. In today’s online world, where comments can be taken out of context, personal injury liability is a greater risk than ever before — and it’s not covered by a standard home insurance policy.
An umbrella insurance policy is excess insurance, which means the underlying policies react to a claim first.
If the limits of coverage on either the auto or home insurance policy are exceeded, the umbrella insurance policy is pressed into service and extends the coverage by $1 million or $2 million, or whatever amount you choose for an umbrella coverage limit. Since neither a home or auto insurance policy offer personal injury protection, the umbrella policy responds first to personal injury claims.
Other insurance policy types can protect against a wide range of risks, from hail damage to your car to wind damage to your roof to medical costs for a broken leg. An umbrella policy only protects against liability — but the potential for loss can be much higher, which makes this type of coverage extremely valuable.
An important consideration is that award amounts in liability cases aren’t determined by your assets. It’s common to think that you if you don’t have many assets that you don’t have much to lose.
However, liability judgments can affect your retirement savings, your home or even your future earnings through wage garnishments. It’s better to match the umbrella coverage amount to your risks than to your assets.
Expect to pay about $150 to $400 per year for a $1 million umbrella policy, with the difference in rates often due to rating factors that also affect home or auto insurance rates. Accidents or recent liability claims can play a role in rates as can other rating factors, like your credit report.
The cost of an umbrella policy can be twofold, however. Insurers require minimum liability coverage limits for the underlying policies. For home insurance, you’ll need at least $300,000 in coverage, which is a common coverage limit even for homes without an umbrella policy.
For auto insurance, you’ll need to raise your coverage limit if you’re below the threshold for an umbrella policy. Insurers commonly require a bodily injury coverage limit of $250,000 and property damage liability coverage of $100,000 or higher. For most households, this means an increase in the cost of the auto policy as well.
How to Get Covered
Getting an umbrella policy is a simple process. However, the underlying coverage on your auto and home insurance policy may have to be increased. While getting a quote on coverage, this is a great time to review your overall insurance strategy.
Umbrella policies are designed to protect your assets and future earnings. Invest some time with an agent to look for coverage gaps elsewhere as well.
An agent can usually quote your policy in minutes and pull information from your existing policies. You may be asked about the activities you engage in as well as property or vehicles you own, which can include boats or aircraft.
Also, expect some questions about pools, trampolines, and which breed of dog you own, all of which can affect bodily injury liability risk.
Some insurers or agents may also require that the underlying policies (auto and home) be held with the same insurer as the umbrella policy. In this case, you might benefit from an extra discount for purchasing multiple policies.
What to Look for in a Company
There are some key factors you’ll want to consider when choosing an umbrella insurance company.
Financial strength: Hopefully, you’ll never need to make a claim against your umbrella policy, but it’s important to choose a company that has the staying power to cover a claim that may not come until years or decades in the future.
Personal injury protection: Many umbrella policies are written on proprietary forms, which means the coverage from one insurer may differ from the coverage offered by another. Check to see if personal injury protection is included with the policy. This coverage is one of the unique benefits of an umbrella policy.
No self-insured retention clause (SIR): For claims that do not use the coverage provided by another policy, some umbrella policies use a self-insured retention clause to limit the insurer’s exposure or even avoid paying smaller claims altogether. The SIR works like a deductible and can range from $250 up to $10,000. Look for a policy with a low SIR or no SIR at all.
Defense outside the coverage limit: Most home and auto insurance policies pay for the cost of defense on covered claims without that cost affecting your available liability coverage. Look for this feature in your umbrella policy because some claims may only be covered by your umbrella policy, like personal injury claims.
The Best Umbrella Insurance Companies
An umbrella policy is likely to be the largest insurance policy you own with regard to coverage limits. With a million dollars or more in coverage at stake, it’s important to choose the best company for your needs.
1. State Farm
State Farm’s broad market approach as an insurer makes the company a good fit for many households.
With State Farm, you’ll be able to insure most of your risk; available policies include auto, home, boat, umbrella and well-structured business insurance policies.
Having a wide range of coverages available allows you to more easily manage your policies with one agent.
State Farm’s umbrella policy, which the company markets as a Personal Liability Umbrella Policy (PLUP), provides coverage options starting at $1 million, which can be increased in $1 million increments.
Personal injury claims for defamation of character, libel or slander are covered by the policy in addition to bodily injury claims or property damage claims that exceed the limits of your home or auto insurance policies.
Travelers offers coverage options ranging from $1 million up to $10 million and is another solid choice when you need more coverage than your home or auto insurance policies can provide.
Personal injury claims such as libel, slander, defamation of character and invasion of privacy are covered by the policy and your coverage follows you wherever you go — anywhere in the world.
Your policy can also help pay the cost of your defense, attorney fees or related expenses.
Allstate’s Personal Umbrella Policy (PUP) can cover the excess liability costs resulting from dog bites, playset injuries, driving accidents, boating accidents and more.
Personal injury coverage is included as well, so defamation lawsuits, like those from online comments or reviews are covered — but you’ll probably still want to be careful about what you say.
Allstate’s PUP even covers lost wages if you can’t work due to court appearances and the company will arrange and pay for your defense for incidents covered by your policy.
For those with more assets to protect, Chubb is a great choice.
Chubb’s umbrella policy, dubbed the Masterpiece excess liability policy, offers coverage options ranging from $1 million up to $50 million.
Personal injury coverage protects you and your family against slander, libel and defamation claims. Defense costs are covered as well, with no cap to the coverage amount for defense costs in most cases.
As a welcome extra, Chubb offers up to $1 million in excess coverage for underinsured or uninsured motorist protection.
If another driver without insurance or with insufficient coverage injures you or a person insured by the policy, you’re covered up to the combined limit of your auto and umbrella insurance coverage.
Choose the Best Umbrella Insurance Policy
In the old days, agents referred to an umbrella policy as a pool policy, which suggests the policy could insure the additional liability risk that comes with owning a pool. For personal coverage, an umbrella policy is one of the most affordable types of insurance when looking at the cost compared to coverage amounts.
Paired with the best home insurance and best car insurance, most of your insurable personal risks are covered by the addition of an umbrella policy. Be aware, however, that business activity is not covered.
But if you volunteer, have kids or guests visit your home or drive — which should include nearly all households, an umbrella policy is an affordable way to protect both your assets and your future earnings.
Frequently Asked Questions
1) Q: How does home insurance liability coverage work?
Most home insurance policies provide liability coverage that can help protect you and your family against several types of lawsuits or liability claims. Coverage limit options usually begin at $100,000 and can go as high as $1 million. Your liability coverage provides coverage for common mishaps, like slip and fall accidents or animal bites and can protect you even when you are away from home. However, home insurance liability coverage does not provide coverage for automobile-related liability or liability related to business activity. Get the best home coverage and policy through our top providers today.
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