Your ultimate umbrella insurance guide

Many people don’t know what personal umbrella insurance is or why personal umbrella insurance is important. Let’s start with the basics: what is personal umbrella insurance and how does it work?

To put it simply, it protects your finances. Injure someone in an accident? Umbrella insurance. Damage someone’s property? Umbrella insurance. Get sued for slander? Umbrella insurance. You get the idea. It won’t cover injuries to you or damage to your property, but it will pick up where your other insurances leave off (say, after an auto accident) or where you’re normally not covered (like a lawsuit for libel).

Why is personal umbrella insurance important?

Personal umbrella insurance is one more layer of protection. Think of it as insurance for your bank balance. The insurance policies that you have now for your auto and home are great (and if they’re not, reach out to the VIU by HUB Advisory Team) but they don’t cover everything. That’s where umbrella insurance comes in. These policies pick up where your homeowners insurance or auto policies stop.

What are some real-life scenarios for personal umbrella policies?

Here are a few examples of umbrella insurance protecting someone.

• Scenario 1: Let’s say you’re at fault in an auto accident and the other driver is seriously injured. They have injuries and mental anguish that need to be paid and your auto insurance says the payment for them exceeds your liability limits. Umbrella insurance can make a payment beyond those limits to minimize or eliminate out-of-pocket expenses, having your wages garnished or liens on your tax refunds.
• Scenario 2: You borrowed a jet ski for a weekend and ran into someone’s dock. Now they want you to pay to repair the dock and the rental company is demanding money to pay for the repairs and the loss of use, but your homeowners insurance policy or second home policy only covers half of what they’re asking for. An umbrella policy could cover the additional amount.

What is covered under personal umbrella insurance?

As with all types of insurance, companies and policies differ. In general, you can expect umbrella insurance to cover for: 

• Bodily injury – if you harm someone, your personal umbrella policy will likely protect you by paying for their medical care and pain and suffering. This includes things like at-fault auto accidents.
• Property damage – this is only if you damage someone else’s property, not your own. If your pool burst and the water flooded your neighbor’s basement, umbrella insurance could help cover damages.
• (Some) legal costs – if you’re sued for personal injury, slander or libel, your policy would cover your defense as well as any restitution or fines you receive.
• Incidents abroad – many policies work worldwide to cover damages and injuries you cause overseas.
• Intoxicated guests – let’s say one of your party attendees had one too many at your house and gets into an accident on the way home. The injured person can sue you and say that it was your responsibility to stop them.
• Volunteer work – active volunteers can be sued for negligence or inappropriate behavior. Not all organizations will help pay to protect their volunteers.

And more. In fact, umbrella insurance covers so much that it might be easier to tell you what it doesn’t cover.

What doesn’t a personal umbrella insurance policy cover?

• Your own property – that’s what homeowners or renters insurance is for.
• Example – your dishwasher leaks into the wall of your condo and destroys your and your neighbor’s drywall. Your damages are not covered by umbrella insurance, but your neighbor’s might be.
• Business losses – even if your business is in your home.
• Example – you offer haircuts out of your home and nick someone’s ear while cutting.
• Criminal or intentional actions – including restitution or intentional damages.
• Example – you spray paint “cheater” on your ex’s new car and they call the police to report it.
• Contracts – if you’ve entered into a contract, umbrella insurance does not protect you.
• Example – your contractor sues you for not abiding by something in the contract you’ve both agreed to and signed.
• Injuries sustained by contract workers – this could happen while you’re doing renovations or repairs.
• Example – Your electrician falls down your stairs.
• Flood damage – flood coverage must be added to your homeowners policy.
• Example – Heavy rains bring water into your basement and the flooring must be replaced.

Who is covered under personal umbrella insurance policy?

The policyholder is covered by their umbrella policy, of course. However, that coverage extends to other members of their household – unless they have their own insurance coverage. A couple examples:

• Scenario 1: Your daughter is away at college living in a dorm where she is covered by your homeowners policy. Your umbrella coverage extends to her, even though you’re not physically living in the same space.
• Scenario 2: Your son lives with you but has his own auto insurance. Your umbrella insurance will not cover him in the event of an auto accident because his auto insurance policy, including any additional coverages is expected to provide coverage.

Do renters need personal umbrella insurance coverage?

We’ve mentioned homeowners a lot here, but you don’t have to own a house to benefit from umbrella insurance. Owning a home isn’t why personal umbrella insurance is important. Renters would still benefit from the protections described in most of the scenarios above, especially those involving lawsuits and auto accidents.

The question isn’t who needs personal umbrella insurance, it’s who doesn’t.

Is umbrella insurance the same as excess liability insurance?

They are similar, but not the same. Excess liability insurance is exactly what it says: it covers beyond the liability of an existing insurance policy. Let’s look at two scenarios to clear up the difference.

• Scenario 1: You have an auto accident that causes $200,000 in injuries and your auto policy covers up to $100,000. In that situation, both excess liability insurance and personal umbrella insurance should cover that additional $100,000 (depending on your policy). This is because you already have an auto policy; your excess liability insurance or personal umbrella insurance picks up where the auto insurance policy left off.
• Scenario 2: You have an auto accident while driving a rental car in Portugal and are responsible for $20,000 in damages. Your auto policy only covers you within the United States. In this case, excess liability insurance will not cover the damages because you were not covered by an existing auto insurance policy while driving. However, personal umbrella insurance will likely provide coverage because these policies extend to losses outside of other policies.

What are some common misconceptions about umbrella insurance?

• Only for the wealthy – Umbrella insurance isn't just for the wealthy. It’s designed to provide extra liability coverage that can be beneficial for anyone with assets they want to protect.
• It's only for homeowners – Umbrella insurance covers more than just homeowners. It extends additional liability protection for renters, car owners and even certain personal activities.
• It's redundant with other home and auto coverage – While home and auto insurance provide liability coverage, umbrella insurance offers additional protection that kicks in when those policies’ limits are reached.
• It's only for extreme situations – Umbrella insurance is useful in many situations, not just extreme cases. It can cover legal fees, settlements and claims that exceed the limits of your primary policies.
• Umbrella insurance covers everything – Umbrella insurance has exclusions and doesn't cover every possible liability. It's important to understand the specific coverage details of your policy.

Hopefully that clears up some of the reasons why personal umbrella insurance is important and why it’s something you should consider. If you want personalized advice about your situation, coverage recommendations or additional information, please reach out to the VIU by HUB Advisory Team. They’re always happy to help with any insurance concerns you might have.