You are unlikely to cause an accident at your home or with your car, and even less likely to get sued for it. But if you are sued, and you lose big, that’s when you want personal umbrella policy to cover your liability.
Your homeowners, rental and vehicle insurance probably include a minimum amount of liability insurance that might pay, $250,000 to someone you injure (because you were speeding on the highway), or cause to be injured because you were neglectful (when you forgot to put sand on your icy walkway.)
A quarter of a million dollars is a lot of money. But it may not be enough when the person who sues is seriously injured or killed. If the person is a high-earning professional, or a gifted student with years of potential ahead of her, you could end up owing much more, according to a judge or jury.
That is why personal umbrella policies are worth looking into.
Yes, you already have a lot of insurance for yourself and your family. In addition to the home and car insurance that the bank and government require you to buy, you may have life insurance, long-term care insurance, and many kinds of coverage for your business. You may be paying for your kids’ auto insurance long after they leave home, just because you’re nice.
But accidents are always unexpected. Your dog is a sweetheart and would never bite anyone. Your daughter is only 16 but you taught her yourself to be a careful driver. You are eagle-eyed when anyone goes near your swimming pool.
You can imagine the rest.
One good aspect of umbrella insurance is that it is cheap compared to most other insurance. A policy for $1 million might be just a few hundred dollars a year, depending on how many people you want to cover, where you live and other factors.
And despite its low expense, it covers a lot. Say you cause a multi-car accident and are sued for more than the liability coverage you carry. If you lose the suit and owe $1 million, the umbrella policy will not only pay the damages, but also your attorney costs, even if they exceed the million-dollar liability limit.
If you volunteer on nonprofit boards or even play or coach in a sports league, your umbrella policy probably will cover costs of damages from a lawsuit involving those activities, too, above any existing Directors and Officers policy that may be in force.
An umbrella won’t protect you from everything. If you commit a crime, you aren’t covered. Likewise, umbrella insurance will not pay for damage you cause to your own property. Nor can you collect for business losses, even if you work from a home-based office.
Umbrella insurance is not a stand-alone policy – you must already have home or rental and auto insurance, which provide a minimum – and a maximum — of liability insurance.
Even if the chances of getting sued are low for most of us, an umbrella policy means you don’t have to worry about losing your house, your retirement savings, or future earnings should the worst happen.