Q:Rob, love your blog. I am a regular reader of your weekly posts archive. I am confused on umbrella insurance. We have a primary home, a rental home, and two vehicles. Can I buy a single one or two million dollar umbrella policy that covers claims from any of those assets, or do I need separate policies for all of them?
A:Brad, that’s a great question. I purchased my first umbrella policy about 10 years ago. Like Brad, I own several rental properties, which motivated me to look into umbrella insurance in the first place. Here’s what I’ve learned about these types of policies.
What is an Umbrella Policy?
An umbrella policy is designed to extend the coverage you have on an existing policy. For example, you may have car insurance, but there are limits on that car insurance. For bodily injury, you might have a $300,000 policy limit. An umbrella insurance policy would extend that limit to the amount of the umbrella policy limit. In this regard, umbrella insurance is similar to what is known as excess liability coverage.
An umbrella policy, however, goes one step further. These policies also cover other things for which you may not have an existing policy. For instance, a policy may cover things like slander, libel, false arrest, malicious prosecution, and other sorts of personal liability situations.
Now in Brad’s question, he mentioned a one or two million dollar umbrella policy. At least for the ones I have seen, coverage starts at $1 million. From there coverages typically increase by $1 million and can go up as high as $10 million or more.
Coverage May Vary
Remember, insurance is a contract, and it’s going to vary from insurance company to insurance company and from policy to policy. So exactly what an umbrella policy will cover is something you need to check, based on a review of the policy with your insurance agent. Most people who buy umbrella insurance are focused on extending car insurance and homeowner’s insurance limits, or to cover rental properties.
For my policy, I can add a rental policy that I own to my umbrella policy by providing my agent with the address of the policy. My agent (who is from Nationwide) has said that I can add up to four rental properties in addition to my own home. For my policy, if I go beyond four extra properties, there could be some additional paperwork and the premium for my policy would rise.
How much does umbrella insurance cost
Speaking from my experience, a $1 million policy with Nationwide cost me $470 a year. Recently we increased the limit to $2 million, and the premiums increased to about $790.
That’s not insignificant, of course, but it’s a lot less than you’d think for that level of insurance. The main reason for this is that it’s not the primary insurance. It usually only kicks in if your loss exceeds the limits on your underlying, primary coverage. The odds of having a claim like that aren’t high, but this insurance adds another layer of protection to your family and your assets.
So to answer Brad’s question, you could have one policy that would cover your home, your cars, and your rental properties, and you can pick the amount of coverage you want. And, of course, you can increase your policy amount later if you think you need it. You may want to check on umbrella insurance if you think it’d be a good fit for your needs.