Imagine a court rules that you are responsible for an accident that took place on your property and you must pay for the damages. Whether you were present or not. Does your existing homeowners insurance policy cover everything completely? It most likely doesn’t.
What is umbrella insurance?
Umbrella insurance is liability insurance that is in excess of your other more specific policies, such as homeowners and car insurance.
Most types of insurance provide one specific kind of coverage. For instance, your auto insurance policy protects you in case of a car accident, while your homeowners policy covers your house, and the belongings in it, against theft or damage. By contrast, umbrella insurance is a single policy that covers most aspects of your financial life – just like an umbrella covers every part of your body in a rainstorm.
So any time you run over the liability limits on one of your other insurance policies, your umbrella policy is there to take care of the extra costs.
When do you need it?
Since the whole point of umbrella insurance is to protect your assets from a lawsuit, it only makes sense to buy it if you have assets to cover: car, house, investment property.
What amount of coverage do you need?
$1 million is generally the minimum amount covered by most umbrella policies. Be sure to speak to your insurance agent for a more detailed recommendation.
How much does it cost?
It is relatively inexpensive. It will range from insurance company to company but plan on approximately $400/year.