What is an Umbrella Policy and
do I need one?

When it comes to protecting your financial future, standard insurance policies like home, auto, or business liability coverage might not always be enough. If you’re ever hit with a lawsuit that exceeds your primary coverage limits, an umbrella insurance policy can provide an extra layer of protection. But what exactly is an umbrella policy, and how do you know if you need one? Let’s break it down.

What Is an Umbrella Insurance Policy?

An umbrella insurance policy is a type of liability insurance that extends beyond the limits of your existing home, auto, or other primary insurance policies. It’s designed to protect your assets and future earnings from large claims or lawsuits that could otherwise put you in serious financial jeopardy.

In addition to boosting your liability limits, an umbrella policy often covers claims that aren’t included in standard policies, such as libel, slander, false arrest, and certain legal expenses.

How Does an Umbrella Policy Work?

Imagine you’re found at fault for a car accident that results in serious injuries. The other party’s medical bills and damages total $750,000, but your auto insurance only covers up to $500,000. Without umbrella insurance, you’d be responsible for paying the remaining $250,000 out of pocket. However, with an umbrella policy, it would kick in and cover the difference, preventing a major financial hit.

What Does Umbrella Insurance Cover?

An umbrella policy provides broad liability protection, including:

• Bodily Injury Liability – Covers medical expenses and damages if you cause injury to someone else (e.g., in a car accident, a dog bite, or a slip-and-fall on your property).

• Property Damage Liability – Pays for damages to another person’s property caused by you or members of your household.

• Personal Liability – Protects against claims of libel, slander, false arrest, and defamation.

• Legal Fees – Covers the cost of legal defense if you’re sued, even if you aren’t found liable.

What Is Not Covered by an Umbrella Policy?

While umbrella insurance offers significant protection, there are some things it doesn’t cover, such as:

• Your Own Medical Expenses – Umbrella policies only cover liability to others, not your own injuries or property damage.

• Intentional or Criminal Acts – If you intentionally cause harm or engage in illegal activity, an umbrella policy won’t cover the resulting claims.

• Business-Related Liabilities – A personal umbrella policy won’t cover business-related claims; you’d need a commercial umbrella policy for that.

Who Should Consider an Umbrella Policy?

While umbrella insurance isn’t required, it’s a smart investment for individuals who:

• Have Significant Assets – If your assets exceed your standard liability limits, an umbrella policy helps protect your wealth.

• Own Rental Properties – Landlords face potential liability risks from tenants and guests, making umbrella coverage essential.

• Engage in High-Risk Activities – If you own a swimming pool, trampoline, or recreational vehicles, you have increased liability exposure.

• Have a High Earning Potential – Even if you don’t have substantial assets now, a lawsuit could put your future earnings at risk.

How Much Does an Umbrella Policy Cost?

One of the biggest advantages of umbrella insurance is that it’s relatively affordable. An average $1 million policy costs around $200–$400 per year, with additional coverage available at an incremental increase. Given the level of protection it provides, an umbrella policy is a cost-effective way to safeguard your financial future.

How to Get an Umbrella Policy

Most insurance carriers require you to have a minimum amount of liability coverage on your existing home or auto policy before adding an umbrella policy. If you’re considering one, follow these steps:

1. Review Your Existing Policies – Check your current liability limits and assess any gaps.

2. Evaluate Your Risk Exposure – Consider your assets, lifestyle, and potential liabilities.

3. Compare Quotes – Get multiple quotes from different insurers to find the best coverage and price.

4. Work with an Independent Insurance Broker – A broker can help tailor an umbrella policy to fit your specific needs.

Final Thoughts: Do You Need an Umbrella Policy?

If you have significant assets, own rental properties, or participate in activities that increase your liability risk, an umbrella policy can provide peace of mind and essential financial protection. Considering how affordable it is compared to the financial impact of a major lawsuit, umbrella insurance is a smart investment for many individuals.

Still wondering if an umbrella policy is right for you? Reach out to us today and we’ll help you determine the right amount of coverage for your unique situation and ensure you have the best protection in place.

You can call 406 401 7220 or email us at info@mtinsurancebrokers.com

Klinton Jones
Licensed Insurance Broker