How an Umbrella Policy Can Save You from Ruin
An umbrella policy is designed to protect you from almost everything your homeowner’s and auto insurance policies do not, as well as fill in gaps in coverage when the limits of these policies are exhausted.
Lawsuits are filed daily against ordinary folks, with reasons ranging from the frivolous to the justified. More often than not, people have no extra protection to block the plaintiff from going after their personal assets.
An umbrella policy is often referred to as excess liability. This excess liability coverage kicks in when the underlying limits on your homeowner’s or auto policy have been exhausted, or if you are sued personally for something that neither your homeowner’s nor your auto insurance covers. Depending on the insurance company, you can purchase from $1 million to $5 million worth of excess coverage, and sometimes as high as $10 million.
The amount of coverage should depend on how much you are worth. If you have $5 million worth of personal assets, you should get at least a $5 million dollar umbrella policy. It is not uncommon for someone to buy a $5 million or $10 million umbrella policy even if that number far exceeds their net worth because the coverage is so inexpensive.
The good news is that coverage is cheap. It is possible to obtain $1 million worth of excess liability for about $150 to $300 per year. The more cars and homes you have, the higher the premium, but the cost is still low.
In addition to your home and cars, liability associated with any other conveyances, such as boats, motorcycles and other recreational vehicles, may also qualify for coverage under the umbrella.
When to tap your policy
For example, if you are involved in a car accident where you hit a pedestrian walking on the sidewalk, resulting in medical expenses that cost more than what your auto policy covered, the policy would kick in.
Or, if the pedestrian decided to sue you for negligence and punitive damages, your umbrella can be used to cover your legal expenses and to pay any judgments levied against you.
Excess liability can also cover you for such things as personal injury, which includes false arrest and imprisonment, malicious prosecution, defamation, invasion of privacy, wrongful entry or eviction.
Remember, without an umbrella policy your personal assets are vulnerable in any lawsuit or legal action.