What is umbrella insurance and why might I need it?

Umbrella insurance

Many people want to know the best way to protect their wealth: Is it an asset protection trust? Putting property in the name of a spouse? Creating a limited liability entity?

While each of these techniques can be helpful, one simple and relatively inexpensive risk-management technique that many people overlook is umbrella insurance.

What is property and casualty insurance?

Property and casualty insurance protects your valuables, like your car or your home, and provides liability coverage to protect you if you are found legally responsible for an accident that causes injury to others, damages their property, or both. Common examples of property and casualty insurance are homeowners insurance, car insurance, renters insurance, and boat insurance.

What is umbrella insurance?

Umbrella coverage is excess liability coverage, which protects you from major claims and lawsuits. This helps you protect your assets – if you are subject to a claim that is covered by your policy, rather than having to pay the claimant with your own assets your insurer will pay.

There are two aspects to umbrella coverage. First, it can provide additional liability coverage above the limits of your property and casualty insurance policies. This coverage is designed to kick in when the liability coverage on those other policies has been used up. Second, it provides coverage for claims that might not be included in other liability policies, like false arrest or liability on rental units you might own. As well as covering losses from these risks, umbrella coverage may also help cover attorneys’ fees and, in some cases, other charges that might come up if you are involved in a lawsuit.

How much coverage is enough?

There is no right answer to this question.

It depends on how much you want to spend to protect your assets. Umbrella coverage is generally quite affordable, up to certain dollar amounts, but you should take time to think realistically about the risks you face and the potential for a lawsuit. Often you can obtain umbrella coverage as an addition to your homeowners, condo or renters policy. Many homeowners policies, for example, can support $5 million or $10 million of umbrella coverage. If those policy limits don’t provide you with enough protection, you can buy a standalone policy. And, as always, pay careful attention to what is and is not covered.

Talk to a J.P. Morgan professional if you would like to review your insurance coverage, and talk to your insurance agent if you think you need to change your existing coverage.

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