When reading about auto or homeowners insurance policies and what they cover, it’s fairly common to come across a recommendation to consider purchasing umbrella insurance for situations in which the coverage limits of those policies might be exceeded. But what exactly is umbrella coverage? Why would anyone need it?

What is umbrella insurance?

The most basic way to describe umbrella coverage is that it is extra liability coverage. If there are damages involved in an accident — either at your home, or in a vehicle — that exceed the limits of your policy, you are responsible for them out of pocket. With an umbrella policy, once your standard policy coverage limits are met, the umbrella coverage kicks in, and the additional costs are paid from that policy.

If there are legal claims involved, such as if you are sued, costs can mount quickly if you do not have additional liability insurance. If you are found to be at fault and cannot immediately pay out of pocket, a court can garnish your wages to satisfy the judgment, so even your future earning potential can be at risk.

In addition to providing extra liability coverage over and above your policy limits, umbrella coverage also often covers things that standard auto and homeowners policies generally do not, such as libel or slander, and legal fees.

If I have homeowners insurance, do I need umbrella coverage?

The quickest way to answer this question is to say anyone who has an elevated risk of being sued should consider umbrella coverage. Some factors include:

• High profile — if you are in the public eye, your risk of being sued increases. This also includes any member of your household who might serve on the board of a nonprofit group or charity, where liability coverage might not be extended to those who serve in that capacity.
• Pools, trampolines — the risk of injuries on trampolines and drownings in pools increases your risk.
• Performance vehicles/recreational vehicles — high-powered sports cars, snowmobiles, boats, and motorcycles are fun, but present an increased risk of injuries.
• Clients in the home — if you have a home office or business and clients visit you in the home, there is an increased risk of an accident for which you might be sued.
• Higher net worth — if there’s a car accident and you’re at fault, your risk of being sued increases if you have a high income or high net worth.
• Land or property — if you own property that people can access, and they are injured on that land, you can be sued — even if the individuals didn’t have permission to be on the property.

Talking to your agent is the best way to determine if adding additional coverage is wise for you. What you are looking to insure or protect is your overall long-term security.

How do I find cheap umbrella coverage?

Umbrella coverage is usually fairly inexpensive unless your situation represents an unusual level of risk. And, similar to other insurance policies, you may sometimes be able to reduce the premium cost by increasing the deductible, having multiple lines of coverage with the same carrier (a multi-policy discount), and having had no previous claims.

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