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

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Even though you have a car insurance policy, 13% of all liability settlements are for $1 million or more -- an amount most most policies simply cannot match. If you have lots of assets, drive often, chauffeur often or all three, you put yourself at a higher risk of getting into a costly accident that your normal policy cannot handle. An Umbrella Policy on the other hand will provide you with extra liability coverage to protect you against the expensive and freak accidents.

How Does an Umbrella Policy Work with My Car Insurance?

Car insurance has several components, but the two most related to an Umbrella Policy are Bodily Injury Liability and Property Damage Liability. They are the two components of auto insurance that deal exclusively with liability, as in, coverages that are meant to pay for someone else’s damage costs. An Umbrella Policy is meant to cover you in accidents where your PD and BI limits cannot suffice.

For example, if you are involved in a multi-car accident, the cumulative damage can enter well into the hundreds of thousands, even millions if people are injured. If you are found responsible for that damage, the average BI and PD limits will probably not cover it all, leaving you to pay for the damage out of pocket. If you had an Umbrella Policy however, it would take over and cover the rest of the damage.

How Much Does an Umbrella Policy Cover?

For most insurance companies, umbrella policies start at $1 million dollars worth of coverage. For perspective, the maximum BI and PD limits a driver can receive for car insurance in New Jersey is $500,000 for each type. Most companies offer up to $5 million worth of coverage, however, policies can go up to as high as $10 million with companies like Travelers Insurance.

Should You Get an Umbrella Policy?

The following drivers should strongly consider an Umbrella Policy:

  • Drivers With Many Assets
  • Commuters
  • Carpoolers
  • Rideshare Drivers
  • Dog Owners of a Restricted Breed

Drivers With Many Assets

The higher your net worth, the more you could lose in a lawsuit. If you get into a serious car crash and have significant financial assets, such as a second home or non-401k investments, other drivers have a bigger incentive to sue you for damages. And if your liability coverages are exhausted, your other assets could be targeted.

An umbrella insurance policy provides extra coverage in the event that you are sued, up to your coverage limits. It's often a good idea to consider if you have over $100,000 in assets.

Another thing to consider: even if you do not have a lot of 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 that 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 Carpoolers

The more you drive, as well as the more people you drive, increases your risk of having a costly accident. Simply, a long commute gives you more opportunity to crash, while chauffeuring children to a little league game gives you more people that can get injured in an accident. Should one ever happen in those times, an Umbrella Policy would step in and cover the extra liability costs. Even if you have modest assets, if you commute or carpool often, you should strongly consider an Umbrella Policy.

Rideshare Drivers

As we have discussed before, ridesharing has a created an uncertain situation for auto insurance companies. While personal auto policies along with Uber and Lyft's own insurance cover most of the trip, there is still a gap in coverage which leaves drivers vulnerable to a liability claim. Companies have been slowly involving, some going so far as to create endorsements or add-ons to policies for ridesharing. Unfortunately, they are not always available in every state. An Umbrella Policy would shield you if you drive for Uber or Lyft in a state where you cannot get coverage. Before signing up for one though, you should calculate how much you expect to earn from rideshare driving, and subtract the cost of an Umbrella Policy from that and see if it is still worth it.

Dog Owners of a Restricted Breed

If you own a dog that is restricted by most homeowners insurance companies, an umbrella policy may be a great option if you have high liability limits on your auto policy. Certain dogs like Pit Bulls and Rottweilers will not be covered by homeowners insurance companies, and because dog bites are common, you should have some sort of liability policy for your pet. If you have very high liability limits, greater than $300,000, you can lower them since you have the extra liability from your umbrella policy. The lower limits will save you on your auto policy.

How Much Does an Umbrella Policy Cost?

The Insurance Information Institute says that a $1 million policy could cost anywhere from $150 to $300 per year. They estimate that it costs an extra $50 to $75 per year for every extra million dollars worth of coverage.

Those are just estimates however. The final cost will be influenced by where you live, your age, your livelihood, your driving record, even financial indicators such as your credit score can influence your rates. At GEICO for example, a quote from New York for a family of four with two young adults, showed a $1 million policy costing $425 per year.

Which Auto Insurance Companies Offer an Umbrella Policy?

The following companies all offer Umbrella Policies:

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

All of the companies require you to have a auto insurance policy and/or 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.

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.