WSJ Your Money Briefing - Why Umbrella Insurance Costs Keep Rising

Episode Date: August 5, 2024

Many Americans who have added umbrella insurance to their existing policies are paying more as it kicks in more often. Wall Street Journal personal-finance reporter Veronica Dagher joins host J.R. Whalen to explain what it covers and ways to rein in the cost. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Travel better with Air Canada. You can enjoy free beer, wine, and premium snacks in economy class. Now extended to flights within Canada and the U.S. Cheers to taking off this summer. More details at aircanada.com. Here's your money briefing for Monday, August 5th. I'm J.R. Whelan for The Wall Street Journal. For Monday, August 5th, I'm J.R. Whelan for The Wall Street Journal.

Umbrella insurance is designed to kick in when the limits on your other policies have been exhausted. But with inflation pushing the price of nearly everything higher, that's happening more often. Many of us are paying higher auto insurance premiums. We're paying higher home insurance premiums. We're paying higher grocery bills. So this is just another cost that has gone up and it's frustrating a lot of consumers. Wall Street Journal personal finance reporter Veronica Dagger will join us and run through the basics and the rising costs of umbrella insurance after the break. after the break. compelling proportions and precise detailing. Built with integrity and purpose, the interior boasts robust, durable materials. Whether it's the all-terrain capability, ample cargo capacity,

or innovative camera technology, the Defender 110 lets you go further and do more. And with seating for up to seven, everyone can enjoy the journey. Learn more at LandRover.ca. Consumers often sign up for umbrella insurance to give themselves an extra layer of coverage but it can be costly and it's getting even more so wall street journal reporter veronica dagger joins me veronica first of all help us with the basics what is umbrella insurance and how does it relate to other forms of insurance someone might have? Umbrella is a type of insurance that's meant to cover extreme situations for which things like car insurance and home policies aren't enough. So it's one of those things that usually kicks in when your limits on your other policies are exhausted. For example, if someone slips on your driveway and is seriously injured, that's probably not going to be covered by your

homeowners. So it not only covers what's in excess of your limits on your other policies, but it can also cover things that kind of fall through the cracks, like quirky things, like claims of defamation after an online post. If you go write a nasty Yelp review, for example, about someone's business or what have you, they may come after you. The umbrella policy will cover that? It might, yeah. And it's really interesting because social media or online slander or libel, so to speak, is an increasing use of these policies. More people are turning to umbrella to help cover them in the situation. What are some of the other more common uses of umbrella insurance?

The most common one is auto accidents. And so these days, claims for auto accidents have really skyrocketed, and that's for various reasons. And so we're in a situation where so much more often, your claims on your auto policy is exceeding what your limits are. And so as a result, if you have an umbrella, it's going to pick up where that auto insurance left off. How do the premiums for umbrella insurance compare to other policies? They are jumping like other policies. And so, for example, umbrella policies in the U.S. rose about like, oh, that doesn't sound so bad. But you need to think about this is a higher bill in addition to all the other higher bills everyone's paying. We're already paying higher auto insurance premiums. We're paying higher

home insurance premiums. We're paying higher grocery bills. So this is just another cost that has gone up. And it's frustrating a lot of consumers. Why has it gotten so expensive? So there's inflation is kind of a catch all for so many of these companies raising prices. But yes, the cost of repairs is higher. Medical bills, medical costs have gone up. There's also bigger legal settlements these days. And as a result, coverage limits on people's policies is getting exhausted. You spoke to some people for your story who have umbrella insurance. What do the higher costs look like for them?

Well, so one of the folks I spoke with, and he was super frustrated. Historically, he paid about $200 a year for his million dollar umbrella policy with Geico. And he's a retiree. And now he's paying about $545 for the same coverage. He'd like to shop around, but it's tricky because he has multiple policies with that insurer. You get a discount typically for bundling your policies together, meaning your auto, with your home, with your umbrella. You get a better price if you do that. And so dropping or trying to negotiate the eighth umbrella policy isn't always possible because the price you're paying is already, it's everything sort of linked together and attached.

So if you take one policy away, you're going to see higher premiums on your other policies. Aside from bundling, are there ways that people might be able to bring down the costs of umbrella insurance? Another strategy that we're hearing increasingly is working with independent insurance agents. So in the insurance world, you can go with an insurance agent who works for a specific large company like the Geico's or the Allstate of the world. And those insurance agents, they can be great, but they're limited to what Allstate is offering or what Geico is offering, where there's independent agents who aren't limited to what they can offer you. They can shop around, they can get you quotes from insurers that maybe you never even

heard of before. Of course, you can shop around online on your own, but when you're doing that, you just really need to read the fine print. Not every umbrella policy is the same. Some cover certain things. Some don't. Your umbrella policy may not work. Even if you have one. It may not work if you don't have proper underlying limits on your home and auto insurance policy. So many companies will say you need to boost those underlying limits before we'll even write you on an umbrella insurance policy. All right. So somebody has umbrella insurance in their portfolio. What should they consider when calculating how much coverage they need? There's a lot of debate among how much coverage you need within the financial planning community. However, kind of a rule of thumb is to have as much as your net worth, at least. So if

you're worth a million dollars, get a million dollar umbrella insurance policy. That's not a hard and fast rule, just because how much you need can really depend on your personal situation. I hear from analysts and insurance agents that this is something you really need to consider if you have a lot of money to lose, first of all. And then also if you have teen drivers in the house, the second you have a teen driver, you want to think about getting an umbrella policy because they're more likely to be in accidents. If you have a really fancy car that's expensive to replace that will easily exceed your auto limits, you might want to get a bigger umbrella policy because if you are ever sued, it is

possible for the other side, the people who are suing you, to look into your assets and see what you have. And so if they see you've got this incredible house, you could be more of a target. That's WSJ reporter Veronica Dagger. And that's it for your Money Briefing. This episode was produced by Zoe Kulkin with Deputy Editor Chris Zinsley. I'm J.R. Whelan for The Wall Street Journal. Thanks for listening.