What About an Umbrella Policy?
Unfortunately, even with our best intentions and efforts, accidents may happen for which we are legally at fault. Medical costs can skyrocket. If someone were permanently disabled by an accident, the expenses of lifetime care could be astronomical. If someone killed left behind survivors who were depending on that person for support, you could be liable for damages to the survivors. Be aware that any costs not covered by insurance will come out of your pocket. Hence, you could be forced to sell property or to turn over part of your earnings for years to come, perhaps the rest of your working life, to an injured party.
There are limits on the amount of liability coverage available as part of your homeowner's and auto insurance policies. If you have total assets valued at more than these limits - including, say, your vacation home, investments, rental property, boats and vehicles -- or if you have a high income, an umbrella policy offers a great deal of protection for a relatively low premium.
In addition to the assets you want to protect, you may want to consider your risk of being sued. Do you live in a state that is particularly friendly to plaintiffs? Do you have frequent guests on your property? Do you have a swimming pool, trampoline, swing set, or other sports equipment in your yard? Do you have a dog that is overly protective of your property? Are you or any of your household members aggressive, fast, or careless drivers? If so, your risk is greater that someone may be injured, perhaps very seriously, and you would be legally at fault. In fact, any situation that could result in serious injury, long-term physical impairment, psychological damage or death could put your financial well-being at risk.
Once the liability limits are exhausted on your home or auto policy, your umbrella policy takes over and provides another layer of liability protection. Policies typically start at $1 million with coverage available up to $10 million. Premiums start at around $300 a year - less than a dollar a day for a great deal of protection.
The best way to determine whether you need an umbrella policy is to discuss your financial status, lifestyle, and current and future assets with your insurance agent. Ask him or her to review the liability limits in your current policies and suggest the best strategy to ensure protection of your assets in the event of an injury for which you are legally liable.