Umbrella insurance extends your coverage

Perhaps you've loaded up on insurance: High limits on car insurance, home insurance and ample life insurance. But even all this coverage can’t always account for every disaster in life. If you want to further protect your assets, there's umbrella insurance. Umbrella insurance kicks in when the limit of your auto or home insurance policy has been reached and there still are damages to pay. How could that happen? Say, for example, someone falls on your sidewalk and sues you for an ungodly amount of money. Or say you cause a six-car pile-up on the highway.

How it works

umbrella insuranceUmbrella policies provide an extra cushion of insurance protection.

An umbrella policy covers damage claims caused by you, your dependents and even your pets. It starts paying out after your homeowners and auto liability limits run out. For example, if you have a home insurance policy with liability coverage of $300,000, the umbrella policy will pay claims above $300,000, up to the limit you select, such as $1 million. Or if your liability limit on your car insurance policy is $250,000 of bodily injury protection per person and $500,000 per accident, your umbrella coverage kicks in after you exhaust that coverage.

Because the majority of claims are paid by your primary auto or home policies, personal liability umbrellas are relatively inexpensive. According to the Insurance Information Institute (III), you can buy a $1 million umbrella policy for about $150 to $300 a year. The next million will cost about $75, and about $50 for every million after that.

Many insurance companies require that you purchase both your auto and home insurance coverage through them in order to buy an umbrella policy, too. Further, your insurer may require you to buy auto or home liability limits at a minimum amount. According to III, most insurers will require you to have about $250,000 of liability insurance on your auto policy and $300,000 of liability insurance on your home insurance policy before selling you an umbrella liability policy for $1 million of additional coverage.

More than your average liability coverage

A personal liability umbrella policy guarantees you more than higher liability limits. You're paying for broader coverage in case you're sued. If you cause bodily injury, property damage or personal injury, an umbrella policy will come to your rescue. Some policies also cover you if you face liability due to your service on the board of a civic, charitable or religious organization.

But just as with any insurance policy, don’t expect an umbrella policy to cover your intentional acts that cause damage. Nor will it pay for punitive damages in judgments against you. Umbrella policies also do not cover damages from any businesses you run. You’d need a business insurance policy for that. Check your umbrella policy for specific exclusions.

Before buying

Before buying an umbrella policy, ask your insurance company about the cost to raise the liability limits in your current auto and home policies. You may even consider offsetting the premium increase for that by raising your deductibles.

At any rate, in a litigious society it's smart to protect your assets.

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