One major lawsuit can have the potential to drain a bank account and leave those involved with nothing — even if the incident was a complete accident. Therefore, nearly every state requires drivers to carry auto liability insurance and many protect their property with homeowners liability insurance. However, basic coverage might not be enough in certain situations.
Accidents could easily become costly. If expenses exceed what liability insurance covers, the remaining damages become out-of-pocket costs if umbrella insurance policies aren’t in place.
An umbrella insurance policy is essentially a safety net that helps cover damages other liability policies don’t. For this reason, it is sometimes referred to as “excess liability insurance.” Umbrella insurance policies sometimes also cover libel, which isn’t usually included in base policies.
Umbrella insurance is not required by law, but it can be extremely helpful in situations in which policyholders owe far more in damages than their base policies will pay. It typically covers things like injury costs and property damage to others, policyholders’ legal defense costs, and other associated costs. However, umbrella insurance usually doesn’t cover the cost of policyholders’ own injuries or property damage.
In most cases, those looking to add umbrella policies must already carry another type of base insurance policy with the same provider, such as auto insurance or homeowners insurance. That being said, some providers offer standalone umbrella coverage, but policies are usually more affordable when bundled with existing coverage.
While an umbrella policy is a great option for some, not everyone needs this type of insurance. If you’re unsure whether you should purchase an umbrella policy, look at your existing assets and potential income. If you own several assets, and those assets exceed your liability insurance coverage, umbrella insurance can help you protect them. The more your assets are worth, the more umbrella insurance coverage you may need to purchase.
You might also want to consider purchasing an umbrella insurance policy if you are at a significant risk of being sued. This may occur if you
To be an ideal umbrella policy candidate, you’ll also need to meet certain liability insurance limit requirements. Typically, before you can add umbrella insurance, your base liability insurance must cover at least $250,000 for auto and $300,000 for home. Fortunately, the cost of an umbrella insurance policy is relatively inexpensive when you consider how much it could save you in the event of an accident.