Umbrella Insurance Pros and Cons

Umbrella insurance is a type of liability insurance that provides additional coverage for other primary insurance policies in the event that their coverage capabilities are exhausted. Since coverage only takes effect after the limits of the primary policies are exceeded, umbrella insurance is classified as a type of ‘secondary’ coverage, and is therefore significantly less expensive than conventional full coverage insurance policies. Umbrella insurance extends the personal and business coverage capabilities for two main types of claims – bodily injury liability (i.e. – injuries caused by neglect or improper conduct, including personal injuries) and property damage liability (i.e. – damage caused by tenants or employees). The term “umbrella” is used because the additional coverage can be applied to multiple insurance policies simultaneously, providing overall protection, similar to a large umbrella being used to protect several people.

Umbrella Insurance Pros and Cons

Consider the following pros and cons of an umbrella insurance policy:

Pros of Umbrella Insurance
Purchasing umbrella insurance is the cheapest and easiest way to obtain comprehensive coverage. In fact, $1 million of secondary coverage can be purchased for only about $150-$350/year, and each additional million dollars of coverage costs only $50-$100 (depending on the particular insurance provider and policy). Aside from allowing you to save hundreds of dollars in annual insurance expenses, umbrella insurance also fully protects your assets and minimizes the possibility of having to pay for repairs or replacements out of your own pocket. These money saving, risk mitigating, and coverage extending benefits are the primary cause for the recent rise in popularity of this insurance type.

Cons of Umbrella Insurance
Unfortunately, umbrella insurance is not capable of extending all types of coverage for all insurance policies or claims. For example, an umbrella insurance policy would not provide additional coverage for claims made against business owners pertaining to clerical errors, omissions, and other matters of professional liability. Likewise, umbrella insurance would not extend the coverage of a personal insurance policy in the event that a claim is made as a result of intentional behavior or business-related activities. Aside from these coverage limitations, it is also important to consider the fact that the additional coverage may never be needed, and could therefore be an unnecessary expense.

Overall, umbrella insurance is an unbeatable value for both businesses and individuals. For the business owner, umbrella insurance offers extra protection for employer’s liability and general liability policies. For the personal insurance policyholder, umbrella insurance extends the coverage of common insurance types like automobile and homeowners insurance. Despite the fact that extended coverage may never be needed, paying a couple hundred dollars extra per year is a small risk to take when considering the potential cost-saving benefits. Although umbrella insurance in general is a great value, not all policies are the same, so it is important to shop around thoroughly and compare terms and premiums from several prospective insurance providers before choosing a policy.