Don't Leave Home Without Your Umbrella

Here is a pair of frightening scenarios: Your new-driver daughter borrows your car and promptly rearends a Bentley, injuring the driver. Or, your uninsured house painter gets stung by a bee, falls off a ladder, and is seriously hurt.

While your auto and homeowners’ or renters’ insurance will pick up some of the liability, if the judgment and legal defense costs exceed the policy limits, you have to make up the difference. If you don’t have enough assets, then the court might garnish your future income.

Is it worth a couple of hundred dollars per year to insure against such a calamity? If you answered yes, you might want to consider purchasing umbrella liability insurance coverage, also called extended personal liability insurance.

By providing liability protection above the basic coverage included in your homeowners’/renters’ and automobile insurance policies, umbrella liability insurance can protect you against the huge costs that can arise if you are sued.

Umbrella liability insurance typically provides a very broad coverage, including claims of bodily injuries or property damage caused by you or members of your household, as well as libel, slander, and defamation of character.

In addition, the policy covers legal defense costs, including lawyers’ fees and associated court costs. Umbrella liability insurance does not cover intentional damage or damages arising out of business or professional pursuits, even a home-based business. Those would be covered by a professional liability insurance policy.

If you are actively involved in volunteer work, you should check on whether or not an umbrella policy covers you while performing activities.

Coverage limits vary, but a typical umbrella policy will provide liability coverage of $1 million. However, up to $10 million of coverage is available at extra cost. 

If you have a sizable estate and/or a high income, than $1 million of coverage may be insufficient. Before purchasing umbrella insurance, you generally must carry minimum underlying liability coverage of $250,000 on your auto policy and $300,000 on your homeowners’ or renters’ policy.

If you don’t carry those minimums, you must make those changes to your existing policies first. The umbrella coverage will not kick in until the underlying coverage has been used up.

Almost any insurance company that offers auto and home insurance coverage will also sell umbrella liability policies. Ask your insurance agent about these policies because you might be eligible for a discount. In the event of a claim, if you have all of your coverage with one insurance company, you eliminate the potential problems of dealing with different insurance companies.

All the information presented on AARP.org is for educational and resource purposes only. We suggest that you consult with your financial or tax adviser with regard to your individual situation. Use of the information contained in this website is at the sole choice and risk of the reader.