What is a personal ‘umbrella’ insurance policy?

An umbrella policy is one that can be used for a wide range of liabilities. As an example, if you are found to be at fault in a car accident, and the injuries exceed the amount of car insurance liability coverage you have, an umbrella policy would become effective to pay the remainder of the costs above your car insurance, to the limit of the umbrella policy. The same is true of house insurance and umbrella coverage, and an umbrella policy can be applied to both circumstances up to the total amount of the policy.

Legal actions have become common in liability injury cases and can become expensive very quickly. Because your legal representation is part of your liability expenses, a finding against you could result in costs much higher than your home insurance policy covers, but an umbrella policy will pick up at the point where your home coverage maxes out, and pay an amount up to the total amount of umbrella coverage you have purchased.

An umbrella policy helps you protect your net worth. If your net worth, including assets such as your home and car, is $2 million, then you should consider an umbrella policy that covers your full value. It is not uncommon for legal claims to placed against your net worth, lending some credence to the old saying of taking a person for all they are worth. Umbrella policies effectively prevent that loss by providing you with versatile liability protection for that amount.