Umbrella Insurance: What is it? How does it work? What should I know as a consumer to protect my business and personal interests? Here are 5 common questions about Umbrella Insurance.

1. How Does Umbrella Insurance Work?

Usually, you won’t turn to your umbrella policy unless a claim has been made against you, the policyholder, by someone who believes you have wronged them in some way. First, your underlying policy — most likely your homeowners, renters, condo, or auto insurance — will pay out its maximum reimbursement, then your umbrella insurance coverage will kick in. The umbrella insurance company will pay the remaining settlement amount up to the limits of your umbrella coverage. Once you have exhausted both your underlying policy and your umbrella limits, you are responsible for any remaining amount due yourself.

An umbrella insurance policy may also cover certain claims that are excluded from a primary policy. Suppose the case brought against you is one that your umbrella insurance covers but your primary insurance does not. In that case, you will first have to pay a deductible on your umbrella insurance, known as “self-insured retention,” and then your umbrella policy will pay out. 

2. How Much Does Umbrella Insurance Cost?

The cost of coverage — or premium — for an umbrella policy typically starts at around $150 to $300 annually for a $1 million policy. Your annual premium will increase if you decide to purchase more coverage — but it’s often possible to double the amount of your coverage and increase the policy limit to $2 million with only a 50% increase in your premium.

Your insurance company may require you to purchase specific minimum coverage limits on your underlying (homeowners or auto) policies before you can add an umbrella policy. Your overall insurance costs may go up — but so will your financial protection. Uncertain? A discussion with your Trusted Choice agent can set your mind at ease.

3. How Much Umbrella Insurance Should I Carry?

You should consider three main factors when choosing your umbrella policy limit:

The risks you may be liable for.  Consider potential hazards in your home or apartment, whether you commute by car and how often, and any risky activities or hobbies you engage in (such as hunting or hazardous sports).

The value of your assets. The greater the value of your assets — including your future income, property, vehicles, personal possessions, stocks, bonds, savings, and retirement funds — the greater your umbrella policy limit should be. 

The potential loss of future income. Weigh your future wages against the possibility of a lawsuit. Remember that if a lawsuit is brought against you, your current assets and future income can be seized to pay the liability claim. 

Even if you don’t own much now or even are still at university, consider your future earning potential. If you’re on track to pursue a high-paying career, you may also have high student debt. A lawsuit could target that future income and negate the large investment you’ve made in a bright future. The higher your potential income, the greater the amount of umbrella insurance you should consider.

4. Where Can I Get Umbrella Insurance?

Many different insurance companies sell umbrella policies. It can be as easy as clicking “yes” online. But if you want the benefit of a trained insurance expert who can analyze your unique needs, call an INSURENEX team member.

INSURENEX team members are independent — meaning they are free to sell you policies from many companies, not just one company.

5. What If I Don’t Have Umbrella Insurance? 

If a claim is brought against you and you do not have sufficient coverage from your underlying policies, anything you own can be seized to cover costs — that can include your house, your car, your investments, your retirement accounts, and your checking and saving accounts. Your future income can also be considered as an asset, causing your wages to be garnished.

A simple, unforeseen accident could potentially devastate you financially or affect your wages for years. Purchasing an umbrella insurance policy is a relatively inexpensive way to help protect yourself from falling into such financial difficulties.

Interested to know more and how you can protect your family and or business, please call and talk with a trusted INSURENEX team member!