Umbrella Insurance

Umbrella insurance is supplemental coverage, the kind that takes a fundamental policy beyond its regular limits. With it, you'll have an extra layer of protection against being sued following an automobile accident. This kind of coverage may also give you protection against vandalism and even property damage.

What's Covered Under the Umbrella?

If you or another person on your car insurance policy causes harm to someone or damages their property, umbrella coverage will pay for the legal fees that you would need to defend yourself in a lawsuit. It will also cover the amount of the settlement that exceeds the liability limits you have in place on your car insurance policy. Without this additional coverage, you would be required to pay these costs out of pocket.

Liability compensation in these types of settlements can be very costly with some of them reaching $1 million or more, making umbrella insurance a financial lifesaver.

It's All About the Details

When it comes to the premium for umbrella insurance, you may get a deal if you buy it from the same insurer as your auto insurance provider. In fact, most insurance companies will only provide umbrella protection when they also insure your home and your car.

Depending on your car insurance company, if you want to add the extra layer of insurance, you will need a base amount in place. For instance, your provider may require that your basic policy comes with $150,000 to $250,000 of auto insurance coverage.

This type of supplemental insurance also provides coverage for claims that other liability policies may deny, such as protection against a false arrest or for libel. An example of the kind of coverage an umbrella policy provides is your being involved in an automobile accident that causes injuries requiring $500,000 in medical care. If the bodily injury limit through your current car insurance policy covers $200,000, then you'd be on the hook for the other $300,000 unless you have umbrella coverage.

Knowing Whether You Need Supplemental Coverage

When it comes to deciding whether you need supplemental coverage, consider what you have to lose and the amount of risk that you're taking by not having it. If you have limited resources, then you may be able to go without it. In many cases, lawsuits are unlikely to be brought against someone who has little available to pay compensation to the injured person. However, if you have considerable assets, then the injured party may come after you with a lawsuit.

When a person is injured by another, he or she will likely expect to be compensated for the harm that was caused. To protect your financial well-being, assess what the legal system could take from you if you lost a big lawsuit. Specifically, take a close look at your net worth. Combine the value of your home, automobiles, savings and investments. Then, subtract the value of your mortgage, car loans and any other debt that you may have. If your net worth is lower than the amount of your current liability coverage, then you may not need supplemental insurance yet.

If you set up your umbrella limit by determining your total assets, you'll have more protection than you would if you based it according to your net worth.

Protecting Your Future Income

If someone sues you following a car accident and you receive a judgment against you that is more than your liability coverage, then your future income could be at risk. In fact, the legal system could garnish your future earnings by as much as 25 percent. To safeguard your future, consider multiplying your current salary by five and add the amount to your asset total. For instance, if the total amount of your household earnings is $100,000 a year and your asset total is $500,000, then you should consider getting a policy for at least $1 million. In this situation, you'll most likely want umbrella protection.

According to estimates, approximately 12 percent of car owners buy umbrella insurance. When it comes to those who fall into the wealthy category, this percent increases to around 50 percent. For individuals who have assets that are more than $5 million, 79 percent invest in an umbrella policy. Experts recommend that people get from $2 million to $5 million in coverage. While the chance of you needing more protection is unlikely, it's not zero.

Umbrella Plans Come with Peace of Mind

Don't skimp on your insurance coverage. Make sure that you have protection that is at least equal to the amount of your current net worth. Umbrella insurance comes to your rescue if you are sued and the amount of your original auto insurance policy is used in its entirety. While you may not think that you need the additional coverage, remember that having a supplemental policy provides peace of mind.