What Is Umbrella Insurance?
Umbrella insurance is a form of liability insurance that will supplement your basic liability policies, such as your auto, home or renters insurance. An umbrella liability policy covers a much higher limit and goes above and beyond claims directly relating to your home and auto.
The main purpose of your umbrella policy is to protect your assets from an unforeseen event, such as a tragic accident in which you are held responsible for damages or bodily injuries. If another party files a lawsuit against you, your umbrella coverage will pay for the damages you're legally responsible for up to the policy limit.
Why Is Umbrella Insurance Important?
Your car, house, investments and retirement accounts, as well as your normal checking and savings accounts and even future income, are all considered assets. It is important to know that if you are sued for a lot of money and do not have enough liability insurance or an umbrella policy to cover those costs, all of your assets are exposed. People typically choose to buy an umbrella policy because they want to prevent the possibility of financial ruin due to one misstep or unforeseen accident. Umbrella insurance can provide the protection to prevent such an outcome.
How Much Does Umbrella Insurance Cost?
Coverage for an umbrella policy typically starts in the rage of $150-$200 for a $1 million policy. Your premium will increase if you decide to increase coverage. However, getting twice the amount of coverage and increasing the policy limit to $2 million will not usually double the cost of your premium.
Is Umbrella Insurance Tax Deductible?
If you have a personal umbrella policy, your premiums are not typically tax deductible.
If you own a business and have an umbrella policy that supplements your other business liability policies, your premiums may be tax deductible.
One particular gray area exists with owners of rental properties. If you own homes and rent them out, you are conducting a business transaction, but you can also include your rental properties under a personal umbrella policy. In this case, you may be able to deduct a portion of your premiums on your taxes.