Additional Liability Insurance
Umbrella insurance is a liability insurance that pays once you exhaust your benefits under an auto or homeowner's insurance policy. If you have assets — or if people think you have assets — you should take a good hard look at umbrella insurance. It is dirt cheap, but it can save you a million.
Most homeowner's and auto insurance policies have some liability coverage, so why buy more? Umbrella insurance serves two major purposes:
It pays above and beyond what your other policies pay
It covers items that your other policies do not cover
Most insurance policies have a limit on what they will pay for a liability claim. For example, your auto insurance might pay up to $300,000. If you are found liable for more than that, the auto-insurance company won't pay. Where else does the money come from? If you do not have any additional coverage, it comes out of your pocket, meaning you might have to sell your assets to cover the difference. If you have additional coverage under an umbrella policy, the insurance company will pay the difference, as long as the claim fits into the policy, of course.
An umbrella policy can also cover you for things that are not covered under any other insurance policies. For example, you might want worldwide liability coverage, which some basic homeowner's and auto policies cannot offer. Likewise, you may want to protect yourself from slander or invasion of privacy lawsuits. There are other examples, but the point is that you have coverage in more areas of your life.
You do not need to be rich to benefit from umbrella insurance. Consider your assets: retirement-plan savings, autos, equity in your home, business interests or property — it adds up. Even if you have nothing to lose, umbrella insurance can help keep you from going into debt.
How much does umbrella insurance cost? It depends on how much you want, but it is really quite inexpensive. For $150 to $300 per year, you can get at least a million-dollar policy. You can add millions on top of that for even less. Note that the insurer typically requires that you have adequate coverage on your auto and homeowner's insurance before they will issue a policy. For example, they might require that you keep $300,000 of liability insurance on your auto policy. That way, the umbrella insurance doesn't kick in unless your liability goes above the $300,000.
