That's where a personal liability umbrella policy can help you. Umbrella policies, as they're also known, supplement the liability coverage you already have through your home and auto insurance and provide an extra layer of protection.
Umbrella policies aren't just for the wealthy — they're for anyone who has assets that might be at risk if they are responsible for a serious accident.
If you don't have enough liability coverage to resolve a claim or a lawsuit, the person bringing the action might go after your home or your other assets to pay for damage. Umbrella policies cover damage claims that you, your dependents, or even your pets may cause.
How it works
Umbrella policies kick in after the liability insurance in your homeowners and auto policy runs out. For example, if you have a home insurance policy with liability coverage of $300,000, the umbrella policy will pay claims above that amount up to the limit selected.
Umbrella policies pay in addition to your liability limits. For example, if your liability limit on your auto insurance policy is $250,000 of bodily injury protection per person and $500,000 per accident, your umbrella coverage would kick in after you have exhausted your auto liability coverage.
Most of the risk is assumed under the primary auto or home policy, which is why personal liability umbrella is so inexpensive. You can buy a $1 million or larger umbrella policy for less than $200 a year.
Many companies won't sell you an umbrella policy unless both your auto and home insurance coverage is with them. In addition, your insurer may stipulate that your auto or homeowners liability limits be at least a certain amount, such as $250,000 to $500,000. Umbrella policies are usually sold with a deductible that might run anywhere from $250 to $1,000. If you're on the hook for a multimillion-dollar lawsuit, that's a small price to pay.
More than your average liability coverage
When you buy a personal liability umbrella, you're getting more
than just higher liability limits. You're also buying broader coverage in case
you're sued. The insurer selling the umbrella policy agrees to cover you if you
cause bodily injury, property damage, or personal injury.
The personal injury protection offers coverage not found in your auto and homeowners policy. Generally, personal injury encompasses false
arrest, false imprisonment, malicious prosecution, defamation, invasion of
privacy, wrongful entry, or eviction. Most primary policies cover bodily
injury and property damage, but not personal injury. Certain umbrella policies
also provide coverage if you face liability arising from your service on the
board of a civic, charitable, or religious organization.
Protection against claims and lawsuits does more than simply pay for the damages. Even if a lawsuit is frivolous, you still face the expense of
defending yourself. Your liability coverage pays for lawyer fees and defense
costs, which can quickly add up.
Do I need an umbrella policy?
As with any type of insurance, you don't want to buy unnecessary coverage. Start by analyzing your risk of being sued and the assets you have at risk.
Perhaps your family has a swimming pool, trampoline, or swing in
the backyard that pose a danger. If you have frequent visitors to your property, there's a risk of accidental falls. What if you have a rental property?
Maybe you're a golfer who narrowly misses hitting someone during every round.
On the other hand, your personal situation may make lawsuits
extremely unlikely. Maybe you don't own a breed of dog that's a threat to
anyone, unless it manages to lick someone to death.
In any event, at a time when million-dollar verdicts aren't uncommon, umbrella policies are worth considering.