Do I need a personal umbrella policy?

Some people mistakenly believe that personal umbrella liability insurance is necessary only if you are wealthy or if you are reckless. But accidents can happen anywhere, to anyone. You might hit a bicycle messenger, your son might hit a baseball through a church window, or a delivery person might slip on your icy porch. No matter how careful you are, you may one day be sued because you injure someone or damage someone's property.

Liability insurance protects your assets in the event that you (or a member of your household) accidentally injure another person or damage someone's property. Standard homeowners insurance, renters insurance, auto insurance, and even some boat insurance policies provide a degree of protection against certain types of personal liability. Personal umbrella liability insurance supplements the basic liability coverage provided by your other insurance--it's designed to kick in when your other liability coverage is tapped out.

Personal umbrella liability insurance is designed to protect you against a catastrophic lawsuit or judgment. It provides expanded coverage and increases the amount of your liability protection beyond the basic coverage provided under your homeowners/renters and auto insurance policies.

There is no exact science when it comes to determining the appropriate level of personal liability insurance coverage, but you probably need more liability insurance than you think. For example, standard home insurance policies usually provide $100,000 to $300,000 worth of liability coverage, but in today's society it's not unusual to hear of $2-million, $10-million, and even $20-million liability judgments. If someone is injured in your home, or if you cause a serious accident, you could be hit with such a judgment. Without a personal umbrella liability policy, a large judgment against you could cost you all the assets you have now, as well as possible future earnings and inheritances. You might think that you only need enough liability insurance to protect your assets, but this figure is practically irrelevant when deciding how much liability coverage you need. Instead, consider factors such as the following:

  • Do you entertain often? (Having guests in your home, serving alcohol, etc., can open the door to potential liability claims.)
  • Do you have a long commute to work? Do you take frequent auto trips?
  • Do you have teenage children? Do they drive?
  • Does your lifestyle make you a likely target for a lawsuit (i.e., do you give the appearance of having "deep pockets")?
  • Do you have a swimming pool or own recreational vehicles or watercraft?

Personal umbrella liability policies are typically available in coverage amounts ranging from $1 million to $10 million. The amount of coverage you should have depends on the factors mentioned above, as well as your risk tolerance and your financial ability to weather a liability judgment.

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