“Umbrella insurance,” formally known as a “personal umbrella policy,” is one of the best and cheapest insurance policies on the market.
Unfortunately, it’s also one of the most undersold policies in insurance. In fact, an umbrella policy can cost as little as $15 per month for $1,000,000 in coverage.
What is umbrella insurance?
No, were not talking about insuring your umbrella that always flips inside out in the wind.
Umbrella insurance policies offer high-limit liability insurance to individuals who are looking to protect their assets in the event of a major accident.
Umbrella policies typically start at $1,000,000 in coverage and can go up to $25,000,000 and higher for those with “a lot to lose.” They are designed to provide protection for the insured against high dollar lawsuits, which are far more common these days.
How does an umbrella insurance policy work?
If you cause a car or boat accident or someone is injured on a property you own, you can be sued for much more than the limits of your insurance.
A personal umbrella insurance policy can be added to an existing liability policy for additional coverage or purchased separately as a stand-alone policy.
But unlike the liability portion of a personal auto or home insurance policy, an umbrella policy typically has a deductible, referred to as a “retention” limit or amount, which must be paid out of the insured’s pocket before the any damages are paid.
The amount can vary from $1,000 to several thousand dollars (or millions) depending on how large the policy is.
What’s the catch?
Typically, an umbrella policy will require you to have relatively high “underlying” liability limits on your other policies.
For example, you may be required to carry 250/500/100 or $500,000 combined single limit (CSL) of liability limits on your auto policy, and/or at least $300,000 liability on a homeowner’s insurance or renter’s insurance policy and at least $300,000 CSL on any owned watercraft.
Of course, it doesn’t make sense to have a $1,000,000 liability policy when you don’t have the highest underlying limits at your disposal.
Rather than write a paragraph about the dangers of bad accidents and lawsuits, we will just point out that an umbrella policy is a good idea for everybody.
Whether you have a high net-worth, a 401(k), or a savings account to protect, an umbrella policy will offer you protection against the unknown and the risks associated with operating a motor vehicle or owning property.
If you have assets to protect or simply want to make sure you are covered to the highest extent possible, the umbrella policy is for you.