Standard homeowners policies include liability coverage, to help pay medical expenses and legal costs when someone sustains an injury in your home or if you’re liable for damage to a neighbor’s property. But some policies don’t provide enough protection, especially if your home has features that may increase your liability risk.Umbrella insurance provides a second layer of liability protection. An umbrella policy picks up where your limited liability coverage ends. You can purchase an umbrella policy with $1 million or more in liability protection to ensure your assets remain safe when disaster strikes. Best of all, umbrella insurance is relatively cheap, offering an affordable way to maximize your protection.
What is umbrella insurance and how does it work?
Homeowners liability usually covers the medical expenses of people outside your household when they sustain an injury on your property. If the victim sues you, your liability coverage will help pay your legal costs too. Liability coverage also pays for the property damage of others when you’re at fault. For example, if your lawnmower throws a rock and breaks your neighbor’s window, your liability coverage will help pay the repair bill.
Umbrella insurance provides extra protection when your homeowners liability coverage falls short. It’s designed to cover costs that exceed the liability limits of your home insurance policy.
Most standard home insurance policies provide default liability coverage of $100,000 to $300,000. Typically, insurers allow you to increase your liability coverage limit. Even so, some homeowners need more protection than standard homeowners liability can provide.
For instance, if you own a swimming pool and like to entertain guests, you could face serious medical and legal costs if someone sustains a serious injury or drowns. If you need $1 million or more in liability protection, you’ll need an umbrella insurance policy.
An umbrella policy can also protect properties you use but don’t own. For example, if you rent a home for summer vacation and accidentally burn down the deck while barbecuing, your umbrella policy may pay to rebuild it.
What does an umbrella policy cover?
An umbrella policy can save the day when you face costly liability, but it’s important to understand exactly what it does and does not cover. Most umbrella policies will cover:
- Bodily injury: Hosting guests in your home increases your risk of an accident. If a guest takes a tumble down your stairs and breaks a leg, your homeowners liability coverage will likely cover the medical costs. But if the victim falls into a lengthy coma and later sues you for pain and suffering, you’ll probably need to rely on the extra coverage provided in your umbrella policy.
- Landlord liability: Some umbrella policies provide a certain level of coverage for landlords. For instance, if you rent a garage apartment to a tenant who sustains an injury when the apartment’s balcony collapses, your umbrella coverage may help pay medical expenses and legal costs.
- Property damage: Standard home insurance can cover most property damage disasters. For instance, if a limb from your tree falls and smashes your neighbor’s fence, your regular homeowners coverage will cover the repairs. But if the entire tree crashes through your neighbor’s home, causing hundreds of thousands of dollars in losses, you may need to rely on your umbrella coverage to pay the cost of restoring the house to its previous state and replacing damaged personal property, like furniture or appliances.
- Personal injury: Personal injury protection covers legal expenses when someone sues you for libel, slander or wrongful eviction. The liability coverage in some homeowners policies provides some personal injury protection. If the cost of a lawsuit exceeds the limit of your home insurance policy, your umbrella insurance will kick in to help cover the additional costs.
In general, it covers past the limits of your typical policy.
What is not covered by an umbrella policy?
There are some kinds of damages not covered by umbrella policies:
- Business losses: An umbrella policy won’t cover your home office property. Likewise, umbrella insurance won’t cover lawsuits filed against your home-based business. You could, however, purchase business insurance that includes liability coverage.
- Losses caused by criminal acts: Like the liability coverage of your home insurance policy, an umbrella policy won’t cover losses caused by illegal activity. For instance, if a policyholder operates an illegal, homemade fireworks business and an accidental explosion burns down a neighbor’s home, the insurer won’t pay a claim.
- Personal belongings: The personal property coverage of your homeowners policy will pay to replace your belongings, like clothing and furniture, following a covered loss, but an umbrella policy won’t. Umbrella insurance only covers the personal belongings of others when you’re at fault for a loss.
- Oral or written contracts: If a contractor sues you for not honoring the terms of an oral or written contract, your umbrella policy likely won’t cover your legal expenses. Likewise, if a legal dispute involves a home-based business, an umbrella policy won’t pay court costs or attorney’s fees.
Before you take out a policy, make sure it will cover the things you want protection for.
How much does umbrella insurance cost?
Many carriers offer umbrella insurance as an optional coverage. Often, you can add umbrella coverage when you purchase a home insurance policy. If you already have a policy, ask your agent if the insurer sells the coverage.
Some premium homeowners policies enable you to increase your liability limit to $1 million or more, which may eliminate the need for umbrella insurance. For instance, Chubb’s standard home insurance policies provide personal liability protection up to $100 million.
According to the Insurance Information Institute, a $1 million umbrella policy costs $150 to $300 annually. However, the cost of insurance varies by location, along with factors such as your home’s age and construction, safety and security features and your age and claims history.
Is umbrella coverage worth it?
Most homeowners can benefit from the added liability protection of an umbrella policy. In standard homeowners policies, default medical payments to others limits usually range from $1,000 to $2,500.
Although most insurers allow you to raise limits, you still might not have enough coverage to pay all the medical bills a guest may sustain. For instance, medical bills for a broken leg can run $7,500 and a three-day hospital stay can cost $30,000. If the injured person sues you, attorney fees, court costs and a settlement can cost hundreds of thousands of dollars.
Generally, you should consider an umbrella policy if your home or property has any type of element that poses greater liability risks. Homes with amenities such as hot tubs, swimming pools, trampolines and treehouses should have umbrella coverage because they increase your liability risk. Even if you don’t entertain guests often, an uninvited visitor may enter your property and sustain an injury, for which the law may find you liable.
If your property has any of these features, ask your insurance agent if your home insurance policy provides adequate protection. Also inquire about precautions you must take, like adding a fence around a pool, installing a pool alarm or adding a lockable cover to a hot tub. Chances are, your agent will advise you to purchase an umbrella policy.
Homeowners who have a home office in which they see clients may also need an umbrella policy. Some standard homeowners policies won’t cover medical and legal costs associated with a business associate visiting your home office. When inquiring about an umbrella policy, make sure it covers this type of risk. If it doesn’t, you likely need to purchase business insurance.
If your yard has tall trees, you likely need an umbrella policy. Trees often topple during storms or fall due to rot or saturated soil. A downed tree can cause serious damage to a neighbor’s home, so protect your assets with umbrella insurance.
In some cases, increasing the limit on your standard home insurance policy will provide enough coverage. Some premium homeowners policies offer liability limits up to $1 million or more.
Excess liability policies offer an alternative to umbrella insurance. With an excess liability policy, you can increase your liability above the maximum limit allowed in your standard home insurance policy. However, excess liability policies only cover the same risks as your standard liability coverage. Many umbrella policies cover more risks, offering more protection.
Frequently asked questions
How much does umbrella insurance cost?
You can purchase a $1 million umbrella policy for a few hundred dollars per year. The cost of a policy can depend on many factors, including your home’s safety and security features, it’s age and construction and your insurance claims history.
Should I purchase umbrella coverage if my home has a swimming pool?
Home features such as swimming pools, fire pits, hot tubs and treehouses increase your liability risk. If you or one of your family members sustains an injury on your property, you can rely on your health insurance to help cover the costs. But if a guest sustains an injury in your home, you’ll need adequate liability coverage. Umbrella insurance can help cover medical expenses and legal costs.
My home insurance policy includes liability coverage, so why do I need umbrella insurance?
Liability coverage only provides a limited amount of protection. Most standard homeowners policies provide default limits of $100,000 to $300,000. Usually, you can increase your liability limit, but it won’t provide the level of coverage offered by an umbrella policy. Umbrella insurance can provide $1 million or more in coverage and many cover more risks than a standard home insurance policy.