No, umbrella insurance won’t protect you against the rain. At the same time, this kind of insurance will make sure you can hold onto your assets if you successfully get sued for damages that exceed the amount of your auto, home, and other liability insurance policies. If you’re a person who has a lot to lose, you may want to learn a bit more about umbrella policies to see if its a good solution for you.

What Does Liability Insurance Cover?

Basically, umbrella insurance offers extra liability insurance after base policies have been exhausted. In addition, this kind of coverage may provide coverage against things that you don’t have a base policy for. You have to look at specific policies to be sure what they cover.

These are some examples of the coverage you can expect from a typical umbrella insurance policy:

  • Additional liability coverage for base policies: Umbrella insurance offers you additional liability insurance after the limits of your auto, homeowners, landlord, and other base policies have been exhausted.
  • Extra insurance for things base policies usually do not cover: Umbrella insurance may also offer liability insurance for things you won’t have in typical base policies. Examples include slander, libel, and false arrest.

How Does an Umbrella Insurance Policy Work?

To understand how an umbrella insurance policy works, think about typical liability policies that you have on your auto. In some states, the minimum requirements may only be $15,000 to $30,000. At the same time, it would be pretty easy to exceed these damages if you cause an accident that totals out a new car and causes a few injuries that require hospital treatment. If you have umbrella insurance, you know that you will be covered after you have exhausted the liability coverage on your base auto policy.

If you have to sell your assets or cash in your retirement savings to pay a judgment, the results of such a lawsuit could change your life for the worse. On the other hand, you could have an umbrella insurance policy that will pay damages after you have exhausted coverage from your base liability policy.

How Much Umbrella Insurance Do You Need?

Typically, you purchase this kind of coverage in increments of $1 million dollars, and you may only pay a couple of hundred dollars a year for this extra insurance coverage. Many advisors say that anybody who has more assets than liability insurance should consider purchasing this kind of coverage up to the value of their total assets. For instance, if your net worth is $780,000, and your auto liability policy only protects you against $50,000 in claims, you can purchase a $1 umbrella policy to make sure you keep your finances secure.

It’s a relatively inexpensive way to make sure that an accident doesn’t wipe out the savings and investments that you worked so hard to collect. If you have a lot to lose, you should consider purchasing this kind of extra protection.

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