One of the most sure things in life is uncertainty, which is why you purchase insurance – to protect against damages that might occur if you experience an accident. Everyone should make sure they are sufficiently protected to cover not only the damages that could occur to their own property, but also the cost of damages (injuries, property destruction, emotional distress, lost wages and more) that could occur to others in the event of an accident.
It only takes one serious accident and a resulting lawsuit to put at risk everything you currently own and will own in the future. If your policy covers $500K in liability and in a lawsuit you are judged liable for $1 million in damages as a result of injuries from a car accident for which you are at fault, do you know how you will cover the additional $500K in damages?
If you have umbrella insurance and your policy covers the incident, the additional $500K will come from your policy. If not, it will come from the assets you have now, such as your home and savings, and from future assets, such as your wages or inheritance.
An umbrella policy gives you excess liability coverage on top of what your other policies provide. If you are responsible for a serious accident, you will need it. Umbrella insurance also gives you liability coverage in situations where other policies don’t, such as driving in a foreign country or renting a boat.
Most financial and insurance experts recommend that everyone have at least a $1 million umbrella policy to provide liability coverage beyond the limits of their auto and homeowners insurance policies, even if they have less than $1 million in assets. That’s because in the rare event people are sued, they could be forced to pay a legal judgment from future earnings as well as current assents. Umbrella policies can also pay for defense costs, which can quickly add up even when cases are won.