Q&A: When Should Your Umbrella Policy Come From a Separate Insurer?

There are situations where an umbrella policy from a separate insurer is best.

colorful umbrellas

Question: In the article, "Hosting a Party? Consider Umbrella Insurance," you said that no one will sell an umbrella policy except the carrier of your other policies. However, our broker found us an affordable $1 million umbrella policy through a company that does not insure our other properties. Your readers should be aware that they can shop around!

Ric's Answer: You're right, I shouldn't have said "can't." In our experience, the vast majority of consumers buy umbrella liability coverage from their home and auto insurance carriers. This is wise because doing so might get you discounts on other policies, and it's more convenient when paying. You're also more likely to have a better experience if you ever have to file a claim.

That said, there are indeed situations where an umbrella policy from a separate insurer is best. For example:

  • You own lots of real estate. Most carriers won't extend their umbrella coverage to more than a few property locations.
  • Your real estate is held in a trust or LLC (limited liability company). If so, you might need a policy from a company offering a "specialty umbrella" policy.
  • You or a household member has a bad driving record. Most insurers won't provide an umbrella policy if you or your teenagers have had too many tickets/accidents or a DUI.
  • You operate a business from your home. Homeowner policies don't generally cover losses due to business activities, and neither do their umbrella policies. So business owners working from home need a separate policy.
  • You need a lot of coverage. Most insurers won't cover you for more than $5 million. If you need more, you have to go elsewhere.

Your insurer's umbrella policy costs a lot. It's rare, but some carriers that have competitive prices for home and auto policies charge excessive amounts for their umbrella policy. In such cases, it can make sense to buy the umbrella policy elsewhere.

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