What is an umbrella policy?
An umbrella policy can serve as an additional layer of liability insurance that's designed to help protect you financially in the event of a major claim - such as a serious auto accident or someone getting injured when visiting your home. Simply put, an umbrella policy can go beyond existing liability limits on your home and auto policies, as well as any rental properties that you may own. It essentially becomes a safety net, providing you with extended liability limits.
For example, you may feel well protected with an auto liability limit of $300,000 per accident. But what if one day your car is involved in a six-car accident where many people are injured, or worse, have died as a result? If you're at fault, you could not only be responsible for property damage, but the medical expenses for every person involved. And while we can't possibly predict what the costs associated with such a horrific accident may be, chances are that it could exceed the $300,000 limit. If your current liability limits aren't enough to cover a costly claim, you could potentially be sued for the remainder of the expenses.
Now, if you think you can't be sued for money that you don't have, think again. It's not always what's in your bank account. Lawsuits can claim more than just damages, and can put things such as your retirement savings and house at risk. A court settlement can even garnish your wages for as long as it takes to satisfy the judgment against you.
If you're considering a personal liability umbrella, you should know that insurance companies typically require that you maintain a certain level of underlying coverage on your existing home and auto policies in order to qualify. For example, an insurer may insist that you keep a liability limit on your auto policy of at least $250,000 per person and $500,000 per accident in order to qualify for a $1 million dollar umbrella, or a $300,000 per occurrence limit on your home.
What does an umbrella policy cost?
Chances are good that you have some wiggle room in your household budget for a personal liability umbrella policy because they are typically very affordable. In fact, policies can be less than $200 a year for $1 million in coverage. That's a small price to pay for a lot of insurance protection.