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Doug Landau
Doug Landau
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Is Umbrella insurance really a fool’s game ?

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Shopping for and purchasing insurance can be a daunting task. Insurance by its very definition is intended to provide you security when the unknown and unexpected happens. So when you are purchasing insurance, it is often very difficult to know what type of coverage, and how much coverage you need. In the midst of the confusion surround insurance, one type of insurance that often gets thrown around is “umbrella insurance”. What exactly is it? And who needs it?

Umbrella insurance is really nothing more than extra insurance that can be used to fill gaps in your existing insurance policies, and to cover steep liabilities that arise out of being sued. The umbrella coverage kicks in once you’ve reached your policy limits on other insurance, like auto insurance or homeowners insurance. Umbrella insurance is a response to the huge number of lawsuits that everyday people find themselves involved in. If you end up as a defendant in a personal injury case, medical bills, attorney fees, and property damage expenses can quickly add up and surpass your normal policy limits. After that happens, your personal assets—your house, your car, your savings accounts—might be at risk in order to pay your liabilities. Umbrella insurance is intended to protect against these risks.

Because of its connection with liability arising from lawsuits, umbrella insurance is often associated with people who have ‘deep pockets’. In other words, the wealthier you are, and the more assets you have, the more attractive you are to being sued, thus placing your assets at risk. So one thing to consider in assessing whether you need an umbrella policy is how much your assets are worth; this means actually taking an inventory of everything you own.

Of course, umbrella insurance isn’t just for the rich and famous. In a litigious society like ours, anyone can potentially benefit from umbrella insurance, and it usually comes at a relatively low price. For example, a $1 million umbrella insurance policy might cost somewhere between $150 to $300 per year. And most companies that sell umbrella insurance will require you to carry a certain amount of liability insurance on your underlying homeowners or auto policies.