What does an umbrella insurance policy cover?

Posted on Mon Jul 05, 2021

What is an umbrella insurance policy? 

Umbrella insurance provides extra coverage over and above your existing liability limits and pays out once your main liability coverage has been exhausted. 

Are umbrella insurance policies worth it? Typically, you'll pay around $150 to $300 annually for $1 million in umbrella coverage, according to the Insurance Information Institute. While $1 million is the standard minimum for an umbrella policy, you also can opt for larger amounts of coverage in million-dollar increments. To be eligible for umbrella coverage, you'll also need to meet minimum coverage requirements on your other policies – typically, $250,000 of auto liability coverage and $300,000 on your home insurance policy.

Who needs an umbrella insurance policy? 

All high-net-worth individuals or high-income earners need an umbrella insurance policy. According to the Alabama Department of Labor, Huntsville workers are higher paid than workers in any other city in Alabama. Most of us can afford an extra $12-25 per month for the additional insurance coverage. 

According to Dave Ramsey (https://www.ramseysolutions.com/insurance/types-insurance-cant-go-without), everyone with a net worth of $500,000 or more should have an umbrella policy. 

When you buy a house or a car or open a business, you may decide to purchase the minimum required insurance coverage. Such coverage may be sufficient after a minor fender-bender or if your roof is damaged by hail. 

However, what if something catastrophic happens? 

In such cases, basic liability coverage in your home and auto insurance policies may not cover the full amount of a large settlement or verdict. Suddenly, every asset you have could be at risk. A court's decision could take away your current savings, a portion of your future wages, and even your house itself. 

When you have assets you can't afford to lose, consider an umbrella insurance policy. 

An umbrella policy can provide an extra layer of protection against the worst-case scenario for business owners, drivers, and homeowners. 

How much umbrella insurance should you carry? 

The answer is, it depends. For most people, $1million is plenty of coverage. However, if you are a business owner with several employees who are constantly on the road, possibly operating large equipment, it is wise to carry a larger umbrella insurance policy.