What is an umbrella insurance policy, and will it cover my vehicle?

If you are involved in a significant at-fault accident, you may be responsible for hundreds of thousands of dollars in liabilities. Bills for injuries, property damage, and legal action can quickly eat up your car insurance liability limits, putting your savings and other assets at risk.

“Anyone with considerable assets should strongly consider an umbrella policy,” says Geoff Stanton, president of Stanton Insurance in Waltham, Massachusetts “It can be a financial lifesaver if a major incident occurs.”

An umbrella insurance policy offers substantial liability protection to supplement your auto insurance liability coverage once it is depleted. It also extends liability coverage to your home or condo, as well as to boats, motorhomes, motorcycles, and other recreational vehicles you may own, if they are listed on the policy

Umbrella insurance provides liability coverage of at least $1 million up to $5 million or more, depending on the carrier. It is typically marketed to people with considerable personal wealth who want to protect their assets in the event of a serious accident.

Key highlights

• Umbrella insurance provides at least $1 million in additional liability coverage.
• It supplements your standard car insurance liability insurance and only kicks in once your primary coverage limits are met.
• This type of policy may also be extended liability to your dwelling and belongings like RVs or boats.
• Umbrella insurance does not cover injuries or property damage you or other covered family members suffer in an accident.

What is an umbrella insurance policy?

Umbrella insurance is a form of supplemental personal liability insurance that augments the liability coverage limits of your existing auto insurance policy and other policies like home, condo, or renters insurance. Umbrella insurance coverage limits are much higher than what a standard policy provides – typically $1 million to $5 million or higher, depending on the insurer.

An umbrella insurance policy extends coverage to yourself, your spouse or partner, children under 21, and immediate family members who live with you. A policy typically provides the following coverages when your liability insurance limits are exceeded:

• Bodily injury. This covers costs for others’ injuries for which you are responsible. It can include medical and legal costs, loss of income, and funeral expenses if necessary. Injuries and fatalities that occur on your property, such as a primary residence, vacation home, or motorhome, are also included.
• Property damage. This coverage will help pay for unintentional damages you cause to another person’s property. However, it does not cover malicious or premeditated damage.
• Legal fees, court costs, and settlements. This includes pain and suffering and things a standard auto or home policy typically doesn’t cover, such as liability, slander, defamation, and invasion of privacy.

Umbrella coverage also extends to other personal lines of insurance like home, condo, renters, motorcycle, boat, and RV insurance.

What does an umbrella insurance policy cover?

An umbrella insurance policy supplements your existing vehicle or homeowners liability insurance by providing additional coverage once your primary policy limits are met. Scenarios where umbrella insurance could come in handy include:

• Someone slips on your icy sidewalk and breaks a leg
• You run a red light and strike several pedestrians
• A guest trips and falls on a loose stairstep at your rental property
• Your teenager posts something potentially libelous about a teacher, neighbor, or other individual
• The family dog bites a deliveryperson, houseguest, or passerby (some breeds, such as pit bulls, may be excluded)

What is not covered by an umbrella insurance policy?

Liability insurance is intended to cover the expenses associated with bodily injury or property damage you cause. It also applies if someone is injured or killed while on your property or in your dwelling or if you are responsible for injuries or damage anywhere else. It does not provide for losses you may sustain, such as damage to your vehicle in an at-fault collision. Exclusions include:

• Your personal property. An umbrella policy does not offer any protection for your vehicle. You will need collision insurance and comprehensive insurance to repair or replace your automobile in the event of an accident, natural disaster, theft, or other covered event. Likewise, umbrella insurance would not provide any coverage to your dwelling if, for example, a houseguest were to cause a kitchen fire accidentally. Your home, condo or renters insurance would cover that sort of damage.
• Your medical bills. If you are injured in a car accident or while at home, your umbrella policy will not cover the cost of your medical care and recovery, including lost wages. Depending on the scenario, those bills should be covered by your health insurance or your personal injury protection (PIP) insurance.
• Business activities. Umbrella insurance policies may not cover your business or work-related activities. If you use your personal vehicle to make deliveries or ferry passengers for a ride-sharing service, for example, you may not be protected in an at-fault accident. Umbrella insurance also does not apply to breach-of-contract disputes.

If you’re considering buying a personal umbrella instance policy, talk to your agent or company representative to ensure it provides adequate coverage.

How much does an umbrella insurance policy cost?

Umbrella coverage is relatively affordable, with an average cost of $383 per year for $1 million in coverage, according to ACE Private Risk Services, a division of Chubb that offers coverage to high-income individuals. Premiums can vary depending on a variety of personal factors, including but not limited to:

• Your primary residence
• Your profession
• Any volunteering you do, such as coaching youth sports or serving on a community board
• Your age and the ages of your spouse, children under 21, and other family members who live with you
• The driving records of all persons in your household who are licensed
• Your claim history
• The make, model and year of all automobiles you own
• The make, model, and year of all recreational vehicles (including boats, RVs, and motorcycles) you own
• Pools or trampolines on your property
• Rental or investment property you own
• Dogs and other large animals (such as horses) you own

How do I buy an umbrella insurance policy?

Umbrella coverage is available from many but not all insurance companies. In many cases, you will need to buy umbrella insurance from the same carrier that issues your primary auto, home, condo, or renters policy and maintain a certain amount of coverage (usually the maximum available).

Depending on the carrier, you may be able to purchase an umbrella insurance policy online, on the phone with a company representative, or in person with a local agent. As is the case when shopping for any kind of insurance, you should get quotes from three to five carriers to ensure you get the best coverage and rate for your needs.