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Why Umbrella Insurance Isn't Enough Anymore

Why Umbrella Insurance Isn’t Enough Anymore

Umbrella insurance can save you from paying significant amounts of money out of pocket in situations where you’re liable for an incident. But is standard umbrella insurance enough anymore? Life is naturally full of risks, and you should be confident you’re protected from them. Find out where umbrella insurance may fall short and how true umbrella policies can provide the necessary coverage.

What Is Umbrella Insurance?

Umbrella insurance works as an additional layer of liability coverage on top of your standard homeowners, auto, and other policies. If your policies don’t sufficiently cover the costs of injuries or damage you’re at fault for, umbrella insurance policies can pay out any additional costs you’d owe out of pocket.

What Is Umbrella Insurance?

For example, imagine you run a red light and cause a car accident that results in serious damage to the other vehicle and injuries to the driver and other passengers. After the cost of car repairs, injury treatments, and loss of earnings, you’re liable for $500,000. Your current liability coverage policies may only cover $300,000. In that case, you’d be responsible for covering the other $200,000 out of pocket.

With umbrella insurance, the difference between primary insurance coverage and what you still owe is covered. In other words, your umbrella insurance could pay the $200,000, and the policy also often covers legal costs in lawsuits.

In terms of coverage, umbrella policies generally cover you and members of your family from lawsuits for damage to another person’s property and personal injury to others. Depending on your policy, you may also have coverage for claims like landlord liability, defamation, and false imprisonment. Details can vary significantly from policy to policy, so it’s important to consider what you need coverage for.

Unlike some policies, there aren’t laws requiring you to have umbrella insurance. Rather, it’s typically something people with many assets or high chances of being sued choose to buy. For example, if you own property, are a landlord, have significant savings, or own things that have the potential to lead to injury lawsuits, you may want to consider purchasing an umbrella policy.

What Umbrella Insurance Doesn’t Cover

So, does umbrella insurance cover everything? While it provides additional coverage for multiple areas of your financial life, there are some exclusions. The two biggest aspects that aren’t covered include damage to your property or your own injuries, since that’s what policies like home insurance and health insurance are for. Here’s a closer look at what a typical umbrella insurance policy doesn’t cover:

  • Damage to your personal belongings: Despite being designed to cover the expenses of damage you cause to someone else’s property, an umbrella policy typically won’t cover damage to your own property. For example, if your sink overflows and damages the walls and flooring in your bathroom, your umbrella policy wouldn’t provide coverage. However, if the flooding causes damage to your downstairs neighbor’s property, umbrella insurance may help cover the cost of the damages caused.
  • Business losses: Umbrella policies typically don’t cover any losses related to your business operations or damage to your business property, even if your business is out of your home. Other business-related liabilities like malpractice lawsuits and losses connected to your paid leadership position at a nonprofit are also not usually covered by umbrella policies.
  • Criminal and intentional acts or injury: Intentionally illegal or harmful behavior won’t be covered by standard umbrella policies. For example, you may owe restitution costs for a crime you committed or damage you intentionally caused. You’ll have to pay restitution out of pocket since your umbrella insurance policy is unlikely to provide coverage.
  • Written or oral contracts: If you’ve entered a written or oral contract and face a lawsuit regarding the contract, umbrella insurance policies won’t provide coverage. For example, if you’re in a contract with someone doing work on your house and they sue you for a breach of the contract, it’s unlikely that your umbrella policy will protect you from the costs.

Uncovered losses are another aspect of umbrella insurance that can vary based on the insurance company. This list of uncovered losses isn’t extensive — for example, some policies may not cover other losses like communicable diseases and damage caused by war, terrorism, or nuclear radiation.

When you’re paying for an insurance policy, you want it to cover you in all of life’s unpredictable events. So while umbrella insurance can provide extra liability coverage, there may still be holes in your liability insurance coverage.

Umbrella vs. True Umbrella Insurance

Umbrella vs. True Umbrella Insurance

Many insurance companies will avoid claims, lawsuits, and settlements at all costs. To avoid those payout situations, insurance companies will only insure low-risk entities and individuals, offer low coverage limits to reduce exposure to possible payouts, and exclude coverage for risky things altogether. Essentially what this means for you as a policyholder is that you’re still not covered from whatever makes you the most vulnerable.

You should also be aware of what is known as an excess liability policy. Excess policies are often referred to as a type of umbrella policy because they also provide additional coverage to your primary policies. The biggest difference between the two is that excess liability only offers extra coverage for what’s already included in your primary policy.

True umbrella policies are open-risk, meaning if something isn’t explicitly excluded from coverage, it’s protected. These policies have higher limits and provide coverage in areas your primary liability insurance might not. These features are some of the benefits of true umbrella insurance.

How True Umbrella Insurance Helps

True umbrella insurance is helpful for many reasons, though these are the most prevalent ways these policies can benefit you.

1. Fills in Insurance Gaps

Primary insurance may not cover all the areas you need it to, especially if you have a low level of coverage on your policy. For example, your homeowner’s insurance may protect you from dog bite claims, though certain dogs breeds will likely be excluded. True umbrella insurance can add coverage to fill in those gaps so you’re more effectively protected.

2. Protects You or Your Business Better

Umbrella insurance more effectively protects you or your business when life throws unpredictable events at you. Having claims filed against you or your business can be stressful and upsetting, especially if your liability insurance fails to provide the necessary protection to cover the costs of the lawsuit. True umbrella insurance ensures you have adequate financial coverage in more situations than your primary policies can cover on their own.

In addition to the costs of damages brought on by life’s unpredictable events, lawsuits are costly — and in today’s world, they’re pretty common. If someone is injured on your property or in your care, you can face a lawsuit. Lawsuits and legal fees impact your financial security, though a true umbrella policy can protect your assets and cover the costs.

3. Protection from Legal Fees

Aside from the costly claims and settlements you’d have to pay in a lawsuit, you’d also be responsible for paying for any legal fees and other expenses associated with the lawsuit, like the cost of an attorney. Many true umbrella insurance policies also cover legal costs so you can avoid paying for them out of pocket.

4. Low Cost for the Amount of Coverage

As with any insurance policy, the cost will depend on factors like the amount of coverage, your level of risk according to the insurance company, and the state you live in. The more coverage you need, the more your cost will be. However, the cost of a true umbrella insurance policy is cost-effective for the amount of coverage you get.

To put it in perspective, most umbrella policies start with $1 million in coverage. These policies only cost a couple of hundred dollars per year, increasing in price when you choose policies with higher limits. You typically need to have a substantial amount of primary insurance before some insurance companies will consider you for an umbrella policy, contributing to the low cost.

Situations Where True Umbrella Insurance Comes in Clutch

Umbrella insurance comes in handy in plenty of situations. While we mentioned a few examples above, let’s look closely at some specific scenarios where you’d greatly benefit from having true umbrella insurance.

1. Dog Bites

Dog bites are common, causing over 800,000 people to seek medical attention each year. While you may not consider your dog likely to bite another person or their dog, stressful situations can put a lot of pressure on any dog, causing them to bite.

Imagine you’re walking your dog and another dog scares it. The two dogs start fighting, and your dog bites the other dog. In the process of trying to pull the two apart, your pet also bites the other owner. The bites result in bodily injury to both the dog and its owner — you could be sued for medical expenses. It’s possible that your homeowners insurance will cover the costs, but if it doesn’t or it only covers a small portion of the costs, you’d be paying for it out of pocket.

Let’s say you owe $40,000 in medical expenses for the dog bite, and your homeowners insurance will only cover $15,000. You’d have to cover the remaining $25,000 on your own, which can be a huge hit to your savings. True umbrella insurance can cover the difference between what you owe and what your insurance covers. Rather than worry about your financial ability to pay the medical bills, you can rely on true umbrella insurance for that extra layer of protection.

2. Pain and Suffering Liability Expenses

Regardless of the incident you’re found at fault for, part of the claims against you could include pain and suffering costs. Pain and suffering expenses refer to the compensation a person can get in addition to their medical bills and other expenses for the psychological stress the incident caused.

For example, if products fell off a shelf in your store and injured a customer, they could sue you for pain and suffering because the incident was traumatic. Depending on the incident, you could be on the line for hundreds of thousands of dollars, sometimes millions. Since umbrella policies have a minimum limit of $1 million, they’re extremely helpful policies to have for situations like this.

3. Libel and Slander Claims

If you’re being sued for making false claims or harmful statements about a person or business, libel and slander claims can hit you hard. Whether you’re defending yourself against defamation, malicious prosecution, or false arrest, you’ll have to fight back in many cases or rebuild your reputation, both of which can be costly.

Let’s say you made a false claim regarding the inferior quality of one of your competitor’s services or products. In doing so, your competition lost a significant number of clients because of your claims. They decide to sue you for slandering their company, which could be a costly claim against you. You likely won’t have help from your primary insurance policies in these situations, so umbrella insurance helps you protect yourself and cover the costs.

4. Homeowners Liability

Umbrella insurance can help increase the liability limit on your homeowners insurance policy. There are numerous situations in which umbrella insurance can help cover the costs of a homeowners claim. For example, you’re having a graduation party and someone falls off the deck. Or, you let a friend stay in your lake house for a weekend and they get injured on your property. Or, an old tree in your yard falls into your neighbor’s house, damaging the roof.

You’re liable for these types of incidents. Your homeowners insurance typically covers these types of situations, though they can easily surpass your policy limit. True umbrella policies offer extra liability coverage to ensure the costs are taken care of.

5. Car Accidents

Another common liability is car accident claims, specifically when you have a teen driver. The risk of a crash is 1.5 times higher for 16-year-old drivers than for drivers just a few years older. While laws require you to have car insurance, the liability limit may not completely protect you if you or a member of your household are found at fault for a serious accident.

A teen driver can increase your risks of an auto claim, so it’s smart to ensure you have a higher liability limit to protect yourself against those increased risks. Even without a teen driver, true umbrella insurance provides a safety cushion for those unexpected moments on the road.

Get a Quote for True Umbrella Insurance Today

Get a Quote for True Umbrella Insurance Today

Life can be unpredictable, and when you’re liable for costly insurance claims, you should be confident you’ll be protected. With a XINSURANCE True Umbrella Policy, you’ll gain peace of mind knowing you and your assets are covered. While most standard umbrella policies will still fall short in risky situations, XINSURANCE offers solutions for risks insurers would say no to.

Contact our team to find out how to get a true umbrella policy quote based on your needs.


Rick LindseyReviewed by Rick Lindsey, President, Chairman, and CEO of XINSURANCE

Rick Lindsey hails from Salt Lake City, Utah. He began working in the mailroom of his father’s Salt Lake City insurance firm, getting his introduction to the business that became his lifelong career. Lindsey quickly rose through the ranks while working in nearly every imaginable insurance industry job. As an entrepreneur, specialty lines underwriter, claims specialist, risk manager, and a licensed surplus lines broker, Rick Lindsey is highly skilled in all levels of leadership and execution. As he progressed on his career path, Rick discovered an urgent need for insurers willing to write policies for high-risk individuals and businesses. He was frequently frustrated that he could not provide the liability protection these entities desperately needed to safeguard their assets. He also formed the belief that insurance companies acted too quickly to settle frivolous claims. Lindsey decided to try a different approach. He started an insurance company and became the newly formed entity’s CEO. This opportunity has enabled Rick to fill a void in the market and provide a valuable service to businesses, individuals, and insurance agents who write high-risk business. XINSURANCE also specializes in helping individuals and businesses who live a lifestyle or participate in activities that make them difficult for traditional carriers to insure. If you’ve been denied, non-renewed, or canceled coverage, don’t give up quite yet. Chances are XINSURANCE can help.