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What is Umbrella Insurance and Do You Need It?

Arm holding a black umbrella
An umbrella policy is an additional way to protect yourself from the unexpected.

When it comes to insuring your home and belongings, you might think a homeowners policy is all you need. But there’s more to protecting your valuables than just the basics. With an umbrella insurance policy, you can expand your range of protection with one policy as a form of secondary insurance.


What does umbrella insurance cover?

If you already have homeowners and auto insurance policies your belongings are typically protected from theft or damage. Umbrella policies cover liabilities above the limits of your homeowners or auto policies. It also protects you in cases of libel, slander and invasion of privacy.

It can cover circumstances where there’s an accident at your home, with your vehicle, or even on rental properties you own. These types of accidents might include a simple slip and fall or a major multi-car pileup.

These types of policies don’t cover businesses you might own, and they also don’t cover intentional acts, like sexual harassment, or crimes, like driving under the influence.


What does umbrella insurance pay for?

With umbrella insurance, you’re covered in the event that you are sued and are found liable. The umbrella policy can protect your savings and even your wages if you have to pay out a large claim as the result of a suit. They also typically cover legal fees for such cases. Policies can range in their coverage amounts, but can range in the millions of dollars.


Should I get an umbrella policy?

Homeowners, rental property owners, and those with large personal assets should consider using an umbrella policy to cover themselves in the event of an accident. If you operate a motor vehicle, you might consider an umbrella policy as a way of insuring that you won’t pay for a simple accident with financial bankruptcy.

As Amy Fontinelle notes at Investopedia, “You don’t have to be wealthy to need an umbrella policy — even if you don’t have any assets, your wages can be garnished.”

Umbrella policies cover not only the policy holder, but also their spouses, children, and relatives who live in the home. If your child, for example, has an accident in the family’s boat as is found liable, the policy would cover legal bills and medical expenses for those injured.

Certain aspects of your everyday life and activities can raise your chances of needing an umbrella policy, such as:

  • Owning a boat
  • Owning a dog
  • Driving a car during rush hour on a long daily commute
  • Having a home swimming pool or trampoline
  • Having large personal assets or savings
  • Being an avid skier, surfer, or hunter


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