Should You Get an Umbrella Policy If You Already Have Car Insurance?

Should You Get an Umbrella Policy If You Already Have Car Insurance?

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Car insurance can be helpful after a car accident, but it only protects you up to your coverage limits. According to some estimates, 13% of all liability settlements are for $1 million or more — an amount most car insurance policies simply cannot match.

If you have a lot of assets and drive often, you put yourself at a higher risk of getting into one of these costly accidents. An umbrella policy can help. These provide extra liability coverage to protect you against expensive accidents.

How does an umbrella policy work?

Car insurance has several components, but bodily injury liability and property damage liability deal exclusively with liability. An umbrella policy financially protects you when your PD and BI limits aren't high enough.

For example, the cumulative damage from a multicar accident may cost hundreds of thousands of dollars or more. If you are found responsible for the accident, your liability insurance will pay for the damage — but only up to your specified limits. You'll be responsible for covering the remaining balance out of pocket. If you have an umbrella policy, it will cover the rest of the damage.

>> LEARN MORE: How much liability coverage do you need?

How much does an umbrella policy cover?

Most umbrella policies include $1 million worth of insurance, which is typically more than liability insurance will cover. For example, drivers in New Jersey can purchase up to $500,000 for bodily injury liability and property damage insurance. You may find an umbrella policy that covers up to $5 million of coverage — or even $10 million of coverage through companies like Travelers Insurance.

Should you get an umbrella policy?

The following drivers should strongly consider an umbrella policy:

  • Drivers with many assets
  • Commuters
  • Car poolers
  • Ride-share drivers
  • Dog owners of a restricted breed

Drivers with many assets

Other drivers and passengers may sue you in court for damages if you're at fault in an accident. You stand to lose a lot if you have considerable assets and you've exhausted your liability coverages.

An umbrella insurance policy can pay for those costs, up to your umbrella policy limits, if this happens. It's a good option to consider if you have more than $100,000 in assets.

Another thing to consider: Even if you don't have many assets now, that might change in the future — and courts can take that into account. For example, a recently trained doctor might not yet have a high net worth, but a liability claim could target future earnings they're expected to receive later on. If you anticipate higher earnings and assets in the near future, then an umbrella policy is worth considering.

Commuters and car poolers

Generally, driving more increases your chances of getting into a car accident — and driving with people in your car means more people could be involved. If you have a long commute, car pool with someone else or frequently drive with other people in your car, then an umbrella policy could be a good option. After a serious car accident, an umbrella policy would cover extra liability costs.

Ride-share drivers

Ride-share drivers are typically covered under personal auto insurance policies along with Uber and Lyft's own insurance. But there's still a gap in coverage that leaves drivers vulnerable to a liability claim. Some companies offer endorsements or add-ons for ride-sharing, but they're not available in every state. An umbrella policy may financially protect you if you drive for Uber or Lyft in a state where you cannot get coverage. But check with the insurer before signing up, and calculate whether the costs make sense compared to how much you expect to earn from the job.

>> LEARN MORE: How ride-sharing affects your car insurance rates

Dog owners of a restricted breed

Homeowners insurance companies consider certain dog breeds risky and may exclude them from your policy. If your dog injures another person, you could be on the hook for any resulting medical bills. An umbrella policy can provide liability coverage in these cases — but check with your insurer to be sure.

How much does an umbrella policy cost?

The Insurance Information Institute says that a $1 million policy could cost between $150 and $300 per year. For each $1 million in coverage, the premium increases by $50 to $75 annually.

Your final cost will be influenced by where you live, your age, your job, your driving record and even financial indicators such as your credit score. For example, a $1 million umbrella policy through GEICO would cost $425 per year for a family of four in New York.

>> LEARN MORE: Understanding auto insurance quotes

Which auto insurance companies offer umbrella policies?

The following companies all offer umbrella policies:

  • GEICO
  • State Farm
  • Allstate
  • Farmers
  • Progressive
  • Liberty Mutual
  • USAA
  • American Family
  • Nationwide
  • Travelers

All of the companies require you to have an auto insurance policy and/or a homeowners policy with them before signing up for an umbrella policy. They also usually require you to have high limits to qualify for an umbrella policy. Some, like Progressive and State Farm, will allow you to bundle your umbrella policy with your other policies for a discount.

>> LEARN MORE: Compare car insurance rates from top insurers

Mark is a Senior Research Analyst for ValuePenguin focusing on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.