When Should you Get Umbrella Insurance Coverage?

Life is unpredictable. That’s why we have insurance. Though, even regular home and auto insurance may not be enough for all circumstances. If you are at risk of being sued, an umbrella insurance policy could be a real lifesaver.

The big question is do you need umbrella insurance?

Insurance is one of those necessary evils. No one wants to pay more in monthly bills than we absolutely have to. At the same time, saving a little on insurance premiums could be the worst mistake you could make. When you really need it, you don’t want to discover that your insurance doesn’t cover your loss.

What is umbrella insurance?

Essentially, an umbrella insurance policy provides additional cover against a lawsuit. Generally, umbrella coverage ranges from $1 million to $5 million. Umbrella insurance coverage is paid in addition to your home and auto insurance.

It covers you against any legal costs and medical expenses that may result from an auto accident, or someone being injured whilst on your property. It also covers landlords for costs resulting from a lawsuit for damages instituted by tenants.

As an example: your auto insurance provides $300,000 for medical expenses. If you’re in an accident and the other party is injured, you may be liable for their medical expenses plus any loss of income resulting from that injury. This can be much more than the $300,000 provided for by your auto insurance.

After going to court, it is decided that you are liable for $900,000 for medical costs resulting from the accident. Your auto insurance will pay $300,000, leaving you with a shortfall of $600,000. I doubt many people have access to that kind of money. If you have umbrella insurance for $1 million, you will be covered for this additional $600,000.

Do you need umbrella insurance?

When considering the example of paying $900,000 in medical costs for an accident, you’re probably thinking “what are the odds?”. This is a relevant question when considering any type of insurance. You need to assess your risk and decide what type of coverage is appropriate.

If you work from home, or commute a short distance to work, an economical auto insurance policy could be fine. Conversely, if you travel extensively for work, you probably need more insurance as your risk is increased by the amount of time you spend on the road.

There are some people who really need to consider umbrella insurance as a priority, these would be:

  • People who drive long distances
  • If you spend a lot of time driving in rush hour when the risk of an accident is higher
  • Your home has a swimming pool
  • You own a dog
  • You entertain regularly in your home
  • You participate in or coach contact sports with a high risk of injury
  • Landlords
  • Anyone who may be at risk of being sued

How to decide if Umbrella insurance is what you need

If you feel that there is a possibility you may be sued for medical expenses or other damages, you should consider an umbrella insurance policy. This could be through the activities you practice, like sports, whilst driving your car, or having people in your home or any real estate that you own.

Perhaps you are uncertain about the extent of your risk, in which case you should speak to an insurance broker or a trusted advisor. Finding out too late that you needed more than regular home and auto insurance can be detrimental. It’s best to have a good analysis of your risks and be prepared.