Umbrella Policies 101

An umbrella insurance policy provides additional liability coverage above and beyond the limits of your other insurance policies, such as your auto or homeowners insurance. Umbrella insurance is designed to protect you from significant or unexpected liability claims that could financially devastate you.

For example, let us say you are the at-fault driver in a car accident and the other driver will never be able to return to work due to injuries from the accident. The damages from the accident total $750,000, but the liability limits on your auto insurance policy are only $300,000. In this case, you could be held personally responsible for the remaining $450,000. However, if you have an umbrella policy, you will actually have a total of $1,300,000 of coverage you would not have to pay any out-of-pocket.

Umbrella insurance is usually sold in increments of $1 million, and premiums are typically very affordable. Ideally you have enough liability coverage to cover your whole net worth plus some consideration given to value of future wages.