Home Insurance Advice: Why You Need Umbrella Insurance


Q: “My family and I make more than a lot of American households. I own my own vintage car repair company, which I operate from my garage. Because of the risks associated with my home business, my insurance agent has recommended that I get something called 'umbrella insurance.' What is umbrella insurance? Why do I need it?” – Home Business Homeowner

A: Like you, Home Business Homeowner, many Americans do not understand umbrella coverage and why it is an important addition to your basic insurance plan. Basically, umbrella insurance fills the holes in your home and auto insurance. For example, if a customer of yours were to trip and fall due to a stray car part, you would be liable for the charges, were he or she to sue you. However, if you have umbrella coverage, your insurance will help you pay the damages.

SEE ALSO: Do You Really Need Insurance?

The Basics Of Umbrella Coverage

In insurance terms, umbrella coverage is called excess liability coverage. It covers lawsuits not covered by your home and auto insurance. For example, if your son’s friend runs around your pool, trips and gets a concussion, your umbrella insurance will cover the damages. But that’s not all umbrella coverage will cover. If the parents of the injured boy sue you, your umbrella coverage will also cover legal costs, such as attorney fees. If that’s not enough to get you interested in umbrella insurance, consider that your umbrella insurance might also cover:
  • False arrest
  • Libel
  • Slander
  • Liability on rental properties you own

How Much Umbrella Coverage You Need

One additional question you should ask, Home Business Homeowner, is how much umbrella insurance you should purchase. A majority of homeowners with a current umbrella insurance policy do not have enough coverage to protect them in the event of a lawsuit or other misfortune. For example, a homeowner with a pool in his or her backyard might have an umbrella policy, but the policy will only cover $100,000, which wouldn’t cover the lawsuit resulting from a pool-related accident. But how much is enough? Though the cost of your home might only be somewhere between $300,000 and $500,000, settlements for personal injury lawsuits far exceed that number. Consider this:
  • In New Jersey, a driver hit a policeman who was completing paperwork at a traffic stop. The settlement was for $1.2 million, plus the legal fees that accompanied the lawsuit.
  • A wave runner accident in Florida made a mother and her 8-year-old child $1.76 million wealthier.
  • Calculators on personal injury settlement sites reveal that the net economic loss due to an accident can be matched in “non-economic damages” (meaning, pain and suffering). For example, on a 85,000 economic loss, a plaintiff might receive around $1,675,000 in a settlement ($85,000 for economic damages and $82,500 in non-economic damages)
Though none of these events might affect your family in the long run, it is important to have the correct amount of umbrella insurance in case it does. Otherwise, you could end up homeless and with a significant decrease in wages.

SEE ALSO: How Does Airbnb Affect Your Home Insurance Rates?

Why You Need Umbrella Insurance Coverage

Umbrella coverage is essentially what you would hope your other insurances to be: it covers you in the event of a lawsuit or other disaster. That is why, Home Business Homeowner, it is integral to have the right amount of umbrella insurance. To decide which amount is right for you, talk to your insurance agent.

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