Hopefully, you will never be served with legal papers and involved in a costly lawsuit. But in the event you are, it will be imperative that you have the insurance to cover your legal liability. That's where a personal liability umbrella policy can help.
Umbrella policies supplement the liability coverage you have through home and auto insurance and provide an extra layer of security by protecting your assets that might be at risk in a liability lawsuit.
If you don't have enough liability coverage from your home and auto policies to adequately resolve a claim, the person suing you can go after your home and your other assets to pay for damages. Umbrella policies cover damage claims that you, your dependents, or even your pets may cause.
Umbrella policies kick in after, and pay in addition to, your auto and home insurance liability limits. The bulk of the risk is assumed under the primary auto or home policy, which enables insurers to offer umbrella policies at very reasonable costs.
However, most insurance companies will not sell an umbrella policy unless both your auto and home insurance is with them. In addition, your insurer may stipulate that your auto or homeowners liability limits be at least a certain amount, such as $200,000 to $300,000. Umbrella policies are generally sold with a deductible that might run anywhere from $250 to $1,000, pocket change if you're being sued for millions!
Umbrella policies provide much broader coverage in case you are sued, covering you if you cause bodily injury, property damage, or personal injury. Certain umbrella policies also cover you if you face liability arising from your service on the board of a civic, charitable, or religious organization.
Umbrella policies typically do not cover claims from business endeavors. If you own a business, even a small one, you'll need to purchase business insurance to protect yourself from business-related liability claims.
To determine if you need an umbrella policy, analyze your risk of being sued and the assets you have at risk. Do you have a swimming pool or trampoline that may pose a threat to visitors? Of course, you may decide your personal situation makes lawsuits very unlikely.
Before making any decision, compare the umbrella premium with the cost of raising the liability limits on your auto and homeowners policies. It may work to your advantage to raise these current limits by several hundred thousand dollars, and you may come out spending less than you would on umbrella policy premiums.