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Getting covered with umbrella insurance

October 19, 2023 • 10 minute read

What is umbrella insurance?

Think of umbrella insurance as a kind of protection that goes above and beyond your other insurance policies. Its purpose: to cover liabilities and damages beyond your base homeowners, auto or watercraft insurance policies. Sometimes known as “personal liability umbrella insurance” or “excess liability insurance,” umbrella insurance picks up where the others leave off.

Let’s say you’re at fault in an auto accident that caused extensive damage to another vehicle. For the sake of illustration, let’s imagine no one was harmed but the other vehicle was very expensive. Let’s imagine you just perfectly smashed a limited-edition Rolls-Royce. Unlikely, but not impossible; the Royce is no longer rolling. Yes, you have auto insurance, but it’s not even close to covering the damages. This is where umbrella insurance comes in.

Umbrella insurance kicks in once your other insurance providers pay for damages and expenses as specified in your base policies. And not only does it provide greater financial protection, it also covers more incidents, plus many legal expenses. However, umbrella insurance is not a replacement policy. It’s necessary to have those base policies in order to be eligible for an umbrella policy.

A family hugging each other and happily smiling at something in the distance

What liability insurance does for you

Liability insurance is intended to cover costs related to injuries to other people or damage done to their property when you’re at fault. You may be involved in a car accident when a light turns red sooner than you expected, or someone could slip on an icy walkway in front of your home. In these cases, the liability policy on your auto insurance may provide compensation for the car accident; the liability policy on your homeowners insurance may provide compensation for the injury caused by the fall on ice. But it’s possible that neither will pay the total sum for which you are found legally liable.

Should you find yourself in a lawsuit, you may be responsible for payments beyond what your insurance policies will pay. There may be additional damage costs, and then there will be the court and litigation costs. These are the expenses that umbrella insurance helps protect against.

What liability insurance does for you

Liability insurance is intended to cover costs related to injuries to other people, or damage done to their property when you’re at fault. You may be involved in a car accident when a light turns red sooner than you expected, or someone could slip on an icy walkway in front of your home. In these cases, the liability policy on your auto insurance may provide compensation for the car accident; the liability policy on your homeowners insurance may provide compensation for the injury caused by the fall on ice. But it’s possible that neither will pay the total sum for which you are found legally liable.

Should you find yourself in a lawsuit, you may be responsible for payments beyond what your insurance policies will pay. There may be additional damage costs, and then there will be the court and litigation costs. These are the expenses that umbrella insurance helps protect against.

A family hugging each other and happily smiling at something in the distance

A woman hugging a dog

What is (and isn’t) under the umbrella

Umbrella insurance coverage is generally more extensive than other liability insurance, but every policy differs. It’s important to read the details carefully to know what situations are covered and what are not.

Damages typically covered:

  • Injury to other persons, including injuries from defamation
  • Damage to others’ property
  • Injuries and damages caused by other members of your household, including your dog
  • Personal damages from wrongful eviction or being falsely imprisoned
  • Legal expenses from lawsuits related to the above

Damages typically not covered:

  • Personal injuries
  • Damage to personal property
  • Liabilities from business or contracts, unless you have a business umbrella policy
  • Liabilities resulting from criminal activities
  • Transference of infectious disease

What is (and isn’t) under the umbrella

Umbrella insurance coverage is generally more extensive than other liability insurance, but every policy differs. It’s important to read the details carefully to know what situations are covered and what are not.

Damages typically covered:

  • Injury to other persons, including injuries from defamation
  • Damage to others’ property
  • Injuries and damages caused by other members of your household, including your dog
  • Personal damages from wrongful eviction or being falsely imprisoned
  • Legal expenses from lawsuits related to the above

Damages typically not covered:

  • Personal injuries
  • Damage to personal property
  • Liabilities from business or contracts, unless you have a business umbrella policy
  • Liabilities resulting from criminal activities
  • Transference of infectious disease
A woman hugging a dog

Build your base liability insurance foundation.

WSECU Insurance Services can help you compare auto and homeowners insurance to find the best policies for your situation.

Find my base policies

A family having some quality time on the couch

From zero to some:
How much insurance to get

The conventional wisdom is to have enough umbrella insurance to protect all of your assets should you find yourself in a lawsuit. But net worth is only one factor when considering if you should get umbrella insurance, or how much your policy should cover.

It should be noted that lawsuit awards may be in the millions of dollars. That’s why it’s important to consider the potential amount of damages due along with your likelihood of being sued, in addition to your net worth.

The odds of being sued

Anyone can be sued, and some argue that we live in a particularly litigious society. In that sense, the risk of being sued is higher than most of us would like it to be. However, there are some people who are at higher risk than others. They include:

  • Landlords
  • Owners of trampolines, swimming pools, firearms, and/or dogs
  • Nonprofit board members
  • Public figures
  • Carpool drivers and/or parents of teen drivers

The list above is not exhaustive. In general, the more people you have in your home, on your property and in your car, the higher the risk of an accident and lawsuit.

Arguments for and against umbrella insurance

Some financial planners indicate that umbrella insurance is primarily a way for wealthy people to protect their assets. And that’s true. The more you have, the more you can lose. However, it’s worth noting that some types assets are protected against lawsuits and debt collection, and there are limits on how much can be collected

While asset protection laws vary state by state, their main goal is to allow individuals who have lost lawsuits to continue to be productive members of society. However, what the state feels is an acceptable loss may feel like financial ruin to you. Knowing how much you could lose in a lawsuit may help you determine if adding umbrella insurance is the right choice.

Assets typically at risk

  • Bank accounts, cash
  • Tangible assets, such as real estate, vehicles, jewelry and other items of value
  • Future earnings, such as wages, commissions, royalties, tax refunds and other income

Assets typically protected

Knowing the exempt property laws for your state may be the most significant factor for many when choosing to purchase umbrella insurance. Exempt property includes types of assets, such as a primary residence, as well as monetary values. For example, there may be a financial limit on how much jewelry you can keep and how much can be collected.

If your assets do not extend beyond what is protected, purchasing the additional policy may not make sense. On the other hand, if your assets go beyond the exemptions, you’ll want to determine just how much you’re willing to risk in a potential lawsuit. A financial advisor can help and advise, but the final decision is yours.

From zero to some: How much insurance to get

The conventional wisdom is to have enough umbrella insurance to protect all of your assets should you find yourself in a lawsuit. But net worth is only one factor when considering if you should get umbrella insurance, or how much your policy should cover.

It should be noted that lawsuit awards may be in the millions of dollars. That’s why it’s important to consider the potential amount of damages due along with your likelihood of being sued, in addition to your net worth.

The odds of being sued

Anyone can be sued, and some argue that we live in a particularly litigious society. In that sense, the risk of being sued is higher than most of us would like it to be. However, there are some people who are at higher risk than others. They include:

  • Landlords
  • Owners of trampolines, swimming pools, firearms, and/or dogs
  • Nonprofit board members
  • Public figures
  • Carpool drivers and/or parents of teen drivers

The list above is not exhaustive. In general, the more people you have in your home, on your property and in your car, the higher the risk of an accident and lawsuit.

A family having some quality time on the couch

Arguments for and against umbrella insurance

Some financial planners indicate that umbrella insurance is primarily a way for wealthy people to protect their assets. And that’s true. The more you have, the more you can lose. However, it’s worth noting that some types assets are protected against lawsuits and debt collection, and there are limits on how much can be collected

While asset protection laws vary state by state, their main goal is to allow individuals who have lost lawsuits to continue to be productive members of society. However, what the state feels is an acceptable loss may feel like financial ruin to you. Knowing how much you could lose in a lawsuit may help you determine if adding umbrella insurance is the right choice.

Assets typically at risk

  • Bank accounts, cash
  • Tangible assets, such as real estate, vehicles, jewelry and other items of value
  • Future earnings, such as wages, commissions, royalties, tax refunds and other income

Assets typically protected

Knowing the exempt property laws for your state may be the most significant factor for many when choosing to purchase umbrella insurance. Exempt property includes types of assets, such as a primary residence, as well as monetary values. For example, there may be a financial limit on how much jewelry you can keep and how much can be collected.

If your assets do not extend beyond what is protected, purchasing the additional policy may not make sense. On the other hand, if your assets go beyond the exemptions, you’ll want to determine just how much you’re willing to risk in a potential lawsuit. A financial advisor can help and advise, but the final decision is yours.

A young family getting the ready for a road trip

Asset reviews and risk tolerance

Because umbrella insurance is by definition additional insurance, you’ll need a certain amount of base liability insurance from your other policies. How much depends on your umbrella policy provider’s requirements, though you usually need a minimum of $300,000 of base liability insurance. But because umbrella insurance kicks in after your other policies pay out, premiums are usually lower than the other base insurance premiums.

For some people, umbrella insurance is an inexpensive means of protecting their assets. For others, it may be an unnecessary expense. Wherever you fall in that spectrum, it’s a good idea to periodically review your total assets against your state’s exempt property laws, the likelihood that you could find yourself in a lawsuit, and the cost of a new policy.

A young family getting the ready for a road trip

Asset reviews and risk tolerance

Because umbrella insurance is by definition additional insurance, you’ll need a certain amount of base liability insurance from your other policies. How much depends on your umbrella policy provider’s requirements, though you usually need a minimum of $300,000 of base liability insurance. But because umbrella insurance kicks in after your other policies pay out, premiums are usually lower than the other base insurance premiums.

For some people, umbrella insurance is an inexpensive means of protecting their assets. For others, it may be an unnecessary expense. Wherever you fall in that spectrum, it’s a good idea to periodically review your total assets against your state’s exempt property laws, the likelihood that you could find yourself in a lawsuit, and the cost of a new policy.

Protect your assets and plan for the unexpected.

WSECU Insurance Services will help get you covered. Let’s find your best umbrella insurance today.

Find my umbrella policy

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Insurance products are not insured by NCUA or any Federal Government Agency; are not a deposit of, or guaranteed by the Credit Union or any Credit Union Affiliate; and may lose value. Any insurance required as a condition of the extension of credit by Washington State Employees Credit Union (WSECU) need not be purchased from our Agency but may, without affecting the approval of the application for an extension of credit, be purchased from an agent or insurance company of the member's choice.

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