What Is a Homeowners Liability Umbrella Policy, and Do You Need One?
Most people think having a standard insurance package is enough, be it for their car, their home or their boat. However, sometimes the upper limits of those policies don’t end up covering the costs of an incident that results in an insurance claim. That’s where umbrella insurance policies come in.
Umbrella policies are lifelines that can protect people from excessive financial distress if a costly accident happens. They extend coverage to claims that end up costing more than the maximum limit of your current policy — and they can be lifesaving should the unexpected occur. But do you really need one for your homeowners policy? Learn more about what umbrella liability policies are and how to determine if it’s in your best interest to purchase one before you decide.
Homeowners Liability Umbrella Insurance, Explained
Umbrella insurance in general provides liability insurance in excess of what’s already covered in your current insurance policy. When you purchase umbrella insurance, it means the insurance company will pay out more in case your normal policy’s coverage limit isn’t high enough to cover an expensive claim. You can purchase an umbrella policy in addition to homeowners, watercraft and auto insurance. Specifically, a homeowners umbrella policy on top of your existing homeowners insurance protects you in the event of a home-related accident that ends up costing more than your existing homeowners policy covers.
In general, homeowners insurance covers events like damage to the interior or exterior of your house, appliances, furniture and personal possessions within your house. It also typically provides personal liability coverage in case someone is injured on your property, such as if your dog bites someone, and it can cover your living expenses in case you have to relocate temporarily while your house is being repaired or rebuilt after incurring damage.
A homeowners liability umbrella policy covers costs that go above and beyond your policy’s standard level of coverage. For example, if someone is injured in your house and your homeowners insurance covers $300,000 worth of medical bills but the medical bills end up costing $800,000, you may be responsible for paying the other $500,000. A homeowners umbrella insurance policy can cover the difference. Umbrella policies often start at $1 million of coverage.
Homeowners Umbrella Insurance Covers More Than the Standard Package
Aside from paying for claim costs that extend above and beyond the dollar amount your standard homeowners insurance policy covers, homeowners umbrella insurance also extends coverage to things that a standard homeowners insurance policy may not pay for. As an example, you can find policies that cover defamation, meaning that if you write or say something that’s false and malicious about someone and they sue you, your umbrella policy covers costs associated with the defamation lawsuit and any money awarded to the person who sues you.
Homeowners liability umbrella insurance may also cover things like false arrest and false imprisonment as well as malicious prosecution. Wrongful entry or eviction and invasion of privacy are other examples of the extras covered under a homeowners umbrella policy. Keep in mind that these specifics can vary based on the company you’re purchasing the policy from, so it’s important to understand these details before you sign up for umbrella liability insurance.
What Umbrella Liability Policies Don’t Cover
While homeowners umbrella insurance covers a lot, it doesn’t cover everything. Personal injuries to people who live in the house aren’t usually covered— your health insurance covers that. Damages to the policyholder’s property also usually must meet certain criteria as being caused by a specific type of event, such as a theft or disaster like a fire.
Business losses, contracts (written or oral) and intentional crimes are also not covered. If you intentionally injure someone else on your property, that won’t be covered. Damages that occur as a result of war, terrorism or nuclear radiation are usually not covered, either. Again, the specifics depend on the provisions of the policy you purchase.
Do You Need Homeowners Umbrella Insurance?
It’s easy to make the case that everyone who owns a home needs a homeowners liability policy. Why? Because accidents happen to everyone, and it can save a homeowner from financial ruin if they encounter the unthinkable. Plus, umbrella policies don’t necessarily cost much more than the standard homeowners insurance policy does. Keep in mind that the average premium for homeowners insurance in the US is $1,015 annually.
The base umbrella policy of $1 million in coverage often costs between $150 and $300 per year. The next million in coverage adds about $75 more a year. The next million and all subsequent millions after that run at about another $50 per year per million. So, adding an umbrella policy to your homeowners insurance likely won’t cost that much more for what you’re getting — a lot of extra coverage.
Still, some people have more incentive to get homeowners umbrella insurance than others. Those who have a lot to lose should get umbrella liability insurance. Wealthy homeowners would be wise to get an umbrella policy for their homes if they have a lot of valuables that exceed what their standard policy covers. This population may get sued more as well. A homeowners liability umbrella policy could cover the costs associated with a lawsuit.
People with trampolines, swimming pools, ponds or other features on their property that could lead to serious medical injury or death if they lead to someone’s accident should also get an umbrella policy. If you host large parties, have staff that works regularly in your home, manage a family trust or own large animals, you would also be wise to get umbrella insurance.
How Much Umbrella Coverage Should You Get?
To begin with, you can’t get an umbrella policy for your home unless your homeowner’s insurance policy already specifies its minimum levels of liability. Typically, to add an umbrella policy, the base liability level must be between $250,000 and $300,000.
Furthermore, to determine the level of umbrella coverage that’s right for you, you should know the value of your assets. That value will guide you toward the level of coverage you should purchase. Your umbrella insurance should at least cover what you own, first and foremost. So, if the total value of your assets is $2 million, you need at least $2 million in umbrella liability coverage.
Another thing to consider is potential future income loss. If you are sued, both your current and future assets could end up at risk. Homeowners who are medical students, for example, must consider what they will earn in the future; an umbrella insurance policy on their home that can protect their future income is a good idea.
Most companies that provide homeowners insurance also provide umbrella insurance. You can likely purchase umbrella insurance for your home from the insurance provider you already use, which can simplify the signup process.