Umbrella insurance provides coverage when you need a little extra. It works when the limits of your auto insurance or homeowners insurance has been reached. It’s basically excess liability insurance for when an emergency occurs. If your homeowner or auto insurance doesn’t pay all of your expenses, then umbrella insurance helps pay the rest or pays all of it.
You don’t need to be rich to have umbrella insurance. Generally, the more assets you have the more risk you face. But that doesn’t mean you need lots of assets to get this coverage. Anyone with a home and family might want to have this coverage. That’s because accidents happen, and you never know how serious they’ll be.
This coverage also helps in cases of defamation, false arrest or imprisonment, malicious prosecution and infliction of mental anguish.
Umbrella insurance is used in cases where you must pay an amount that exceeds the cost of your primary insurance. For example, say you’re sued following a car crash. You are ordered to pay $10,000, but you only have $5,000 worth of liability coverage. Your umbrella coverage will pay the remaining $5,000. Umbrella policies come in $1 million increments. Depending on your claims history, your first $1 million of umbrella coverage will likely cost less than $300 per year.