An umbrella insurance policy is extra liability insurance coverage that goes beyond the limits of the insured's home, auto or watercraft insurance. It provides an additional layer of security to those who are at risk for being sued for damages to other people's property or injuries caused to others in an accident.
Since umbrella insurance protects your assets from a lawsuit, you should only buy it if you have substantial assets to protect. We recommend buying an umbrella insurance policy if your net worth is at least $1 million – the minimum amount covered by most umbrella policies.
An umbrella insurance policy can cover a number of situations, for example if a guest in your home falls down a flight of stairs and is seriously injured, you may be liable for the medical costs, plus a lawsuit if you are sued as a result of the accident. Your personal liability insurance will cover these costs up to your policy limits, but if the medical bills and legal fees are greater than your coverage limit, you are then responsible for paying that amount out of pocket. However, if you have personal umbrella insurance, it will kick in and cover the extra payments.
While you may not believe your particular lifestyle warrants additional coverage, the truth is, you just never know when a significant accident or situation could arise. If you find yourself in the middle of a lawsuit, your savings, assets, and even retirement funds could be at risk. Knowing you have the coverage and protection you need to avoid a future of financial headaches could be well worth it.