Does it make more sense to increase my car insurance limits or buy an umbrella policy?

The decision as to whether an automobile owner in California should increase their automobile insurance coverage limits or purchase an additional umbrella policy rests on three factors. Those factors are your net worth, the difference in cost of the two types of policies, and the chances you could be responsible for extremely high liability costs in the event of an accident. Examining those areas will make it clear whether it's in your best interest to simply increase the liability coverage on your automobile insurance or take out an umbrella policy that will cover over a million dollars in liability costs in addition to your current insurance policy.

An umbrella or personal liability insurance policy is designed to protect your hard earned assets. The higher your net worth, the higher the chances people will try to sue you if you are involved in an accident. For people with a net worth in excess of $500,000, an umbrella policy may be your best bet. If you drive a very expensive automobile and/or live in a community where the chances are high you could be involved in an accident with an expensive automobile or do damage to high dollar property, an umbrella policy is the way to go.

On average, auto insurance policies provide up to between $500,000 and $1 million in
coverage in case of an accident. Depending on how much more you want to raise your car insurance coverage, it may be more cost effective for you to simply add an umbrella policy. If you, your spouse, or your children that are included on your automobile insurance policy drive a powerful, expensive car, and you have a net worth of $500,000 or more, then switch to an umbrella policy. If you are the average working Joe or Jane living on a moderate income and who owns very few assets, increasing the amount of your coverage should suffice.

The cost of the increase in coverage versus the cost of the premiums on an umbrella policy is the second thing you should consider. Increasing the liability coverage by an additional $100,000 per accident can cost as little as from $50 to $150 per year. An umbrella policy of between $1 million and $3 million costs between $200 and $400 a year. If paying the additional $300 to $400 dollars a year it takes to get umbrella coverage will be a strain on your budget, then your best bet is to simply increase the liability coverage on your existing policy.

Simply increasing your liability coverage may also best serve your needs if the cost of the automobiles and properties in the areas in which you commonly find yourself are relatively low. If repairing your vehicle or the vehicle with which you are most likely to have an accident or the property you are most likely to damage will probably cost less than $50,000, then simply raising your liability coverage should suffice. If on the other hand, you often find yourself around high dollar automobiles and multimillion dollar properties, it may be in your best interest to get an umbrella policy.

People with teenage drivers and powerful, expensive automobiles in their homes often opt to purchase an umbrella insurance policy. Young drivers are more likely to get into accidents than any other age group. Powerful cars can do lots of damage to people and property in an accident. Plus repairing or replacing those automobiles can be very expensive. For many people it is worth it to pay a few hundred dollars a year for the peace of mind of knowing that should their teenagers do damage while driving the family automobile it will not bankrupt the entire family and haunt them for years afterwards.