Umbrella insurance covers losses outside the parameters of your auto insurance policy. A standard auto insurance policy covers a wide range of perils, but it doesn't cover everything. A personal umbrella policy helps cover situations that might otherwise be excluded from your underlying policy. This differs from excess insurance, which only provides additional limits for covered perils already in your current policy. Umbrella policies are available for home insurance as well.

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What is an umbrella policy?

An umbrella policy is a supplemental insurance policy that provides additional liability coverage beyond what is covered in your standard car insurance policy. For example, your car may not be covered in a foreign country. With an umbrella policy, you could get liability coverage while driving overseas. An umbrella policy may extend the claim limits of your coverage as well.

In short, a basic auto insurance policy includes bodily injury liability and property damage. The dollar limits and range of coverage are set when you purchase the policy. If a situation occurs outside the range of your insurance policy's coverage, you would be responsible for the resulting costs out of pocket. A personal umbrella policy could cover the situation, as well as possibly provide higher limits.

Umbrella policy vs. excess liability

Umbrella policy coverage and excess liability coverage seem very similar, but there are significant differences. An umbrella policy can cover perils beyond the scope and limits of your underlying policy, while excess liability extends the limits of your underlying policy. To put it another way, an umbrella policy can add more coverage points and higher limits. An excess liability policy just adds higher limits.

What umbrella insurance covers

Umbrella insurance typically covers:

  • Slander and libel
  • False arrest, detention or imprisonment
  • Injury to others
  • Property damage to others
  • Invasion of privacy

A standard auto insurance policy may cover some of these perils, but not necessarily. An umbrella policy can help fill in the coverage gaps, as well as provide higher limits. Umbrella insurance can be an excellent value, as collision and comprehensive car insurance do not usually cover the above perils either.

Umbrella insurance exclusions

Perils often excluded from an umbrella policy are:

  • Unintentional injury or damage to yourself or your property
  • Business losses
  • Intentional or criminal acts
  • Damage or injury caused by specific vehicles, such as jet skis

An umbrella policy is a completely separate policy from your standard car insurance policy. You can even buy an umbrella policy from a different provider than the one that sold you your underlying car insurance policy, although many insurers want you to carry your underlying policy with them as well. This makes it important to be clear in your understanding of the coverage, exclusions and limits of an umbrella policy before you buy one.

Do I need an umbrella insurance policy?

If you have extensive wealth or holdings, an umbrella policy may be an excellent solution to get coverage beyond the limits of your standard car insurance. Umbrella insurance should also be considered if you're at a higher risk of being sued or own high-risk items such as a pool or certain dog breeds.

A $1 million umbrella insurance policy offers plenty of coverage in most cases. However, you may need more. When figuring out how much umbrella insurance you need, consider the risks you face and the value of your assets.

Most auto insurance policies set the upper limit for liability coverage at $500,000. If your assets and holdings are higher than that, you should consider investing in an umbrella policy.

How much does an umbrella policy cost?

Umbrella policies can start as low as around $150 a year for the first $1 million worth of coverage. Higher limits are not that much more expensive, given the amount of coverage an umbrella policy provides.

How to get umbrella insurance

Many of the major insurance companies offer umbrella policies. Some recommended providers include:

Note that USAA only provides car insurance for current and veteran military members, but you still have plenty of other options if you're a civilian.

You'll want to figure out what the value of your assets and holdings are before you buy an umbrella insurance policy, as well as what kind of risks you face in regard to being sued. Keep in mind that some insurance providers may want you to have certain liability limits already before selling you an umbrella policy. Make sure to compare quotes from multiple companies to find your best coverage at the best price.

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