Umbrella insurance is additional liability insurance that will protect you financially if you are sued for a large amount of money. Auto and home policies have limits in terms of the dollar amount they will cover; these limits are agreed upon at the time you set and sign the policy and can often help to determine the price. The higher the limit, the higher the cost of the policy.
But limits are limits, and by definition carriers will not exceed them in their payouts. If you want fiscal protection against a large lawsuit, umbrella insurance is the way to go.
As you've likely gleaned by now, the term "umbrella" does not literally refer to the hand-held instrument that protects you from the rain. It's a metaphor, referring to how the policy shields holders more broadly than does primary coverage.
Here are some examples where umbrella insurance might be in your best interests.
- You often host guests. If people are coming in and out of your home a lot, there is an ever-growing risk of someone slipping and/or falling and injuring himself badly.
- You spend a lot of time in your car commuting to work. The more time you spend in your the better your chance of a catastrophic accident.
- You own a small business. Nothing can derail a small business like a big lawsuit. It could be in your best interest to take out an umbrella policy just to make sure a small slip doesn’t end up forcing you to close down shop.
Umbrella coverage may seem like an extremely cautious step -- insurance on top of insurance. But a glance at the numbers shows that for a few extra dollars each month, you can protect yourself from a catastrophic loss. Most policies cost only $250-$600 a year, which is likely a small price to pay to further protect your most valuable material assets.