You have insurance, whether it’s car, homeowners or personal insurance. But what happens when you are involved in a lawsuit and it’s for more than the protection you have? You could end up in financial distress if you don’t have the right coverage. That’s where umbrella insurance comes into play. It gives you extra liability coverage when you need it.
How Does an Umbrella Policy Work?
In order for an umbrella policy to take effect, you need a primary policy in place. Consider it a secondary insurance. Just like if you had two medical insurance policies. Your primary insurance must pay whatever they cover first. The secondary insurance then helps with whatever amount is left.
In the case of homeowners insurance, your insurance company would pay out on the claim whatever they promised after you pay your deductible. The amount that is left is what the umbrella policy will help you cover.
Who Needs Umbrella Insurance?
The umbrella policy covers you in the event of a lawsuit. Even if you don’t have any assets, someone suing you could sue for future earnings. Umbrella coverage prevents that from happening by providing additional coverage.
Anyone that owns a home, drives a car or operates any type of watercraft needs this type of policy. Even though you have standard insurance, it often isn’t enough. People sue for just about anything today, leaving you liable for thousands of dollars in damages that you don’t have, but will have to pay in the future.
Is Personal Liability Umbrella Coverage Costly?
Luckily, most personal liability umbrella coverage is very affordable. You can get thousands of dollars or even millions of dollars in coverage for a few hundred dollars a year. Of course, the exact cost depends on the situation, insurance company, and the amount of coverage you obtain. Typically, most people take out at least a $1 million umbrella policy. Most people don’t end up using it, but the protection is there if you need it.
Figuring Out the Right Coverage Amount
The hardest part is probably picking out the right coverage amount. Before you decide, consider the following questions:
- How much do you have in assets that someone could come after?
- What is the potential of your future income?
- What situations do you put yourself in that could result in a lawsuit? (driving a car, owning a home, etc.).
The answers to these questions will help you determine just how much coverage you need. For example, if you spend a lot of time on the road, you may want extra coverage because your risks are increased due to the time spent on the road.
Finding the Right Umbrella Policy
Before you buy an umbrella policy, make sure you ask the requirements. For example, some insurers only provide coverage for current insurance customers. They require all policies, including home and auto to be with them before they will provide umbrella coverage. Other companies offer stand-alone umbrella policies, but may have other restrictions.
The bottom line is that you should consider an umbrella policy, no matter how little or how much you have. Obviously, the more assets you have, the more coverage you’ll need. Talk with your insurance provider to see just how much $1 million or more coverage will cost. It’s often not as expensive as you would think and can provide you with incredible peace of mind in the end.