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Questions about Umbrella Insurance?

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What is Umbrella Insurance?

Umbrella Insurance policies provide coverage of $1 million or more to protect you in the event you are sued for a car accident or injury related to your property.

You’ve accumulated valuable assets throughout your life — your home, autos and financial assets — just to name a few. In the event of a catastrophic loss, your assets may be at risk if someone goes after your net worth. Unfortunately, anyone can be hit with a lawsuit, and million-dollar judgments have become commonplace. Even if the court were to decide in your favor, you might still owe legal fees and court costs. With personal umbrella coverage, you’ll have a powerful ally to help you mount a strong defense against the financial burden of personal litigation.

An umbrella insurance policy protects your current assets and future income beyond the limits of your auto and homeowner’s insurance policies. As an umbrella over your other policies, it adds an extra measure of liability coverage after those policies have reached their payout limits. Umbrella policies provide coverage of $1 million or more to protect you in the event you are sued for a car accident or injury related to your property.

The Need for Umbrella Insurance

Anyone whose assets include at least a home and a car should consider the protection umbrella insurance provides, according to MSN Money. If you are held liable — found to be at fault — in a lawsuit for an accident or injury, and your homeowner’s or auto insurance has paid out the maximum on your policy, an umbrella policy can be used to pay the balance due the victims, as well as your legal fees.

How Umbrella Insurance Works

Let’s say you accidentally hit another car on a rainy night and seriously injure two people. If they sue, a judgment against you could reach into the millions of dollars to pay for their medical bills and pain and suffering. If your auto insurance policy caps your liability at $300,000, your coverage for such an event will fall short of what you owe in the judgment. In this case, if you have an umbrella policy, coverage would take effect after your auto insurer paid out the maximum $300,000.

How Much Coverage You Can Buy

Umbrella policies offer coverage from $1 million to $10 million, according to the Insurance Information Institute. For this additional coverage, you will pay a certain price for the first $1 million of coverage — perhaps $150 to $300 a year — and the next million might cost $75 annually. Beyond $2 million, every additional million you add to the policy will cost approximately $50, according to the Institute.

How Much Protection You Need

Consult an insurance agent to determine how much umbrella coverage is right for you. The answer will depend on what you own — primary residence, vacation home, investments — and your income-earning potential, as you would be paying for an expensive settlement well into the future from your take-home pay. Financial adviser Suze Orman recommends that your combined insurance policies, including your auto, home and umbrella policies, cover at least the amount of your net worth, which is the value of your assets minus your debts.

Additional Costs

Since umbrella coverage is designed to activate after your other policy limits have been exhausted, insurers require you to have maximum liability coverage for your home and auto. For most policies, this means at least $300,000 of liability on your home and $250,000 on your auto

– Jennifer Hicks, ehow Contributor

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