Umbrella Insurance FAQ

Umbrella insurance can increase your existing liability coverage from several different policies. This additional coverage can be critical if you face a hefty lawsuit. Read on to find answers to your most commonly asked questions about umbrella insurance policies.

What Is Umbrella Insurance?

Umbrella insurance is also known as excess liability insurance. Its purpose is to increase your existing liability coverage limits, typically in increments of $1 million.

Umbrella coverage can supplement many different policies, including car insurance, renters insurance, homeowners insurance, personal watercraft insurance, and business insurance. Beyond increasing your standard liability limits, umbrella insurance can cover certain claims that wouldn't typically be covered by your existing auto, home, business, etc., policies.

Having umbrella insurance can help you recover from what would otherwise be a financially devastating lawsuit. These lawsuits can arise for many reasons, but some of the most common claims are from third-party bodily injuries and personal property damage. If you are sued by a third party, if your existing liability coverage under, say, your home insurance is exhausted, your umbrella insurance can kick in to cover the remaining expense.

What Does Umbrella Insurance Cover?

Umbrella insurance covers additional liability expenses, such as your legal defense in a lawsuit, beyond what's covered by the limits of an underlying policy like commercial general liability insurance or homeowners liability insurance. Umbrella insurance can cover attorney, court, settlement, defense, and judgment expenses, as well as costs related to false arrest, libel, and slander.

How Does Umbrella Insurance Work?

Umbrella insurance policies essentially "stack on top" of various policies, including business liability insurance, to increase your total coverage. Say your business faced a lawsuit for a third-party claim of a severe injury that occurred on your premises. If the claim was extensive to the point that your existing business liability insurance was exhausted, umbrella insurance could cover the remainder of the lawsuit expenses.

So, if your business faced a lawsuit that had a total cost of $1.5 million but your general liability insurance had a coverage limit of $500,000 and you had a $1 million commercial umbrella insurance policy, you could be reimbursed for the full cost of the lawsuit between your two policies.

Why Is Umbrella Insurance Important?

Without umbrella insurance, you could suffer from large financial losses if you faced a major lawsuit. Many lawsuits can cost hundreds of thousands of dollars or more for a single incident. Because of the expensive nature of many lawsuits, it can be easier than you expect to exhaust your standard policy's liability coverage.

Many customers purchase umbrella policies for added security. Business owners, especially, turn to umbrella insurance to increase their protection against lawsuits that could otherwise lead to bankruptcy.

Without umbrella insurance, if your existing liability coverage doesn't sufficiently cover the full expenses from a lawsuit, you could be stuck paying out of pocket for whatever's left over. Umbrella insurance can spare you from having to pay thousands out of pocket for covered claims.

How Much Does Umbrella Insurance Cost?

Umbrella insurance tends to be highly affordable, especially considering the amount of coverage it provides. Typically, umbrella insurance can average $150-$300 per year for a $1 million policy.

Your premium will increase if you decide to increase coverage. However, getting twice the amount of coverage and increasing the policy limit to $2 million will not usually double the cost of your umbrella insurance premium.

Is Umbrella Insurance Tax-Deductible?

Personal umbrella policies are not typically tax-deductible. However, if you have a commercial umbrella policy for your business, your premiums may be tax-deductible.

An area where it's not so clear-cut as to whether umbrella insurance premiums are tax-deductible is for rental property owners. If you own homes and rent them out, you are conducting a business transaction, but you can also include your rental properties under a personal umbrella policy. In this case, you may be able to deduct a portion of your premiums from your taxes.

How Much Umbrella Insurance Should I Carry?

There are a few main things to consider when you choose your umbrella policy's coverage limits. These include your risks and exposures, and the likelihood that you could face an expensive lawsuit.

Also, consider the total value of all your assets, including savings, stocks, bonds, possessions, and retirement funds. The greater the value of your assets, the more umbrella insurance coverage you'll likely want to purchase.

Finally, consider any potential loss of income in the future if a hefty lawsuit occurs. Speak with an independent insurance agent to determine your specific risk factors and learn more about how to protect your current and future assets.

Where Can I Get Umbrella Insurance?

You can buy an umbrella insurance policy through many different insurance companies and agents, but one of the best ways to get umbrella insurance is through an independent insurance agent. These agents can comparison shop from many insurance companies specifically for your needs, and find the right policy at the right price for your budget. Your agent will listen to your unique needs for coverage to determine the appropriate amount to look for in a policy.

Does Umbrella Insurance Cover Professional Liability?

Umbrella insurance can most certainly cover professional liability, and it’s fast becoming one of the most popular forms of insurance with professionals. Psychologists, financial planners, and investors are just some occupations that take advantage of this coverage.

A business umbrella policy only provides liability supplements to existing professional liability insurance policies. A business umbrella policy differs from a personal umbrella policy because it focuses on specific liabilities businesses face, such as professional “errors and omissions,” which refers to service, advice, or consultation that results in a loss for the client or customer. Lawsuits related to professional liability claims can be covered much more comprehensively if your business adds a commercial umbrella policy to its business insurance plan.

Does Umbrella Insurance Cover Malpractice?

As a professional in certain healthcare and legal fields, you probably have a comprehensive malpractice insurance policy already in place. If you are sued and the limits are exceeded on your malpractice policy, your business umbrella policy can pay up to the policy coverage limit.

Make sure the deductible on your umbrella policy and the coverage limit on your malpractice policy are butted against each other. Otherwise, there could be a sizable gap, and you will likely be responsible for paying that amount out of pocket.

Does Umbrella Insurance Cover Lawsuits?

Yes, umbrella insurance covers expenses from lawsuits after your underlying policy's liability coverage limits have been exhausted. Umbrella insurance can reimburse you for lawsuit expenses that exceed another policy's liability coverage.

Does Umbrella Insurance Cover Property Damage?

Yes, umbrella insurance can cover claims related to property damage. Third-party property damage claims are one of the most common causes of lawsuits. If you face a related claim and your home insurance, business insurance, etc., doesn't include sufficient liability coverage, your umbrella insurance can reimburse you for the remainder of the lawsuit expenses.

Does Umbrella Insurance Cover Dog Bites?

In many cases, umbrella insurance can cover dog bite claims in the same way it would other claims that result in lawsuits. Keep in mind that certain dog bites may be excluded from coverage, such as those that arise from a listed dog breed that's known for being particularly aggressive, or those that occur because a dog was provoked into the attack. Review your specific policy with your independent insurance agent to be certain of when dog bite claims can be covered.

Does Umbrella Insurance Cover Floods?

Umbrella insurance typically doesn't cover flood damage. It will only cover property damage and bodily injury that you cause and will only provide payment to a third party.

However, there are water damage scenarios that your umbrella insurance might cover. For example, if you live in an apartment, condo, or duplex above another unit and you forget to turn off the bathtub, which overflows and destroys your downstairs neighbor’s expensive antique furniture, your umbrella policy would most likely protect you in the event of a large claim or lawsuit.

Does Umbrella Insurance Cover Uninsured Motorists?

No, umbrella insurance typically won't cover expenses related to accidents with uninsured or underinsured motorists. To have coverage for such incidents, you'll need to add uninsured motorist coverage to your car insurance policy. This coverage can reimburse you for property damage, medical bills, etc., if you get into an accident with another driver who doesn't carry sufficient coverage of their own to reimburse you or if you're involved in a hit-and-run accident.

Does Umbrella Insurance Cover Car Rentals?

Yes, umbrella insurance can protect car rentals. An umbrella policy can increase the liability coverage you have for a rental car in case of an accident or another incident while driving your rental car. This can help you avoid huge expenses while on vacations, business trips, etc.

Does Umbrella Insurance Cover Rental Property?

Yes, umbrella insurance can cover rental property. This coverage can supplement the liability coverage provided by a renters insurance policy to increase your protection if you are a renter. It can help cover expensive lawsuits related to causing third-party injuries or property damage in your rental unit. Umbrella insurance can also protect landlords who own rental properties.

Should Landlords Have Umbrella Insurance?

Landlords can greatly benefit from having umbrella insurance. Because landlords can be held liable for tenant injuries and other incidents that occur at their rental properties, having umbrella insurance can be wise.

Landlords can get reimbursement from umbrella insurance for third-party claims of personal property damage or injuries while visiting your rental property. It can also cover tenant claims of personal property damage and injuries that occur while renting from you.

Is an Umbrella Policy Worth Having?

Whether umbrella insurance is worth having depends on your personal circumstances. If you have a large liability risk and a potential lawsuit could possibly exceed the coverage you have under an existing policy, it can definitely be worth purchasing umbrella insurance.

However, if you don't have many possible liability exposures and have sufficient liability coverage under one of your current policies, such as home insurance or renters insurance, you might not decide that umbrella insurance is worth buying.

What Are the Disadvantages of Umbrella Insurance?

There aren't many disadvantages to having umbrella insurance. These policies are typically quite affordable, especially when you consider how much extra protection they offer if you face a large lawsuit.

However, it's possible the limitations or exclusions in your umbrella policy may frustrate you. Since umbrella insurance can be combined with many different types of policies, you'll need to review your specific umbrella policy to determine what's not covered.

What Is Not Covered by an Umbrella Policy?

Umbrella insurance coverage exclusions can vary depending on the policy you have and what policy it's paired with. In general, umbrella insurance won't cover intentional injuries or property damage you cause to someone else.

It also won't cover your medical bills for personal injuries or repairs for personal property damage, or any liability you assume under a contract. Make sure to ask your independent insurance agent to review your specific umbrella insurance policy's list of coverage exclusions with you before you ever try to file a claim.

An independent insurance agent can help you find affordable umbrella insurance quotes and shop and compare policies for you to find the best coverage.