Should you carry an umbrella insurance policy?

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It’s worth considering if you have valuable assets to protect. Umbrella insurance provides extra liability protection above the limits of your car and home insurance policies. It covers damage claims that you, your dependents or your pets cause to others, and it kicks in once claims exceed your home insurance and auto insurance liability limits.

Typically an insurance company will require you to buy a certain level of liability protection through home and car insurance before you buy an umbrella policy. Because auto and home insurance at those levels covers most claims, the additional umbrella coverage is inexpensive — about $150 to $300 a year for a $1 million umbrella policy, according to the Insurance Information Institute (III). The next million would cost about $75, and every million after that would run about $50 a year.

A personal liability umbrella policy pays your defense costs if you’re sued, but it doesn’t cover intentional acts that cause damage or pay for punitive damages in judgments against you. Umbrella policies also don’t cover damages from any businesses you own. You need business insurance to cover those risks.

Talk to your insurance agent about the cost of raising your liability limits on your auto and home insurance policies before purchasing an umbrella policy. You’ll pay a higher premium for higher limits, of course, but you might be able to offset that cost by increasing your deductibles.

For more, see Umbrella insurance extends your coverage.