Like any responsible homeowner or driver, you have homeowners and auto insurance coverage – perhaps at even higher levels than the minimum required by the state. You may assume your policies will protect you in case someone is injured on your property or you're involved in an auto accident.
Although homeowners and auto insurance are important foundations for financial protection, they may not be enough. You could be liable for amounts that exceed your insurance coverage.
Rainy Day Protection
Umbrella insurance, sometimes called personal liability insurance, is designed to cover catastrophic situations where a legal award could exceed the limits of your auto or homeowners insurance. It is generally sold in increments of $1 million worth of coverage and goes into effect only once the primary insurance limit is reached.
For example, suppose someone is injured on your property and successfully sues you for $500,000. If your homeowners policy limit is $300,000, you'd be personally responsible for the remaining $200,000, plus the deductible amount on your primary insurance. However, if you also have a $1 million umbrella policy, you would be completely covered except for the deductible amount.
To qualify for umbrella insurance coverage, you must have primary insurance (homeowners and/or auto) that meets a certain level of liability coverage as determined by the insurer.
Who Needs Umbrella Insurance?
You don't need to be wealthy to benefit from umbrella insurance, but the more assets you have, the more at risk you are for a lawsuit. Even if you don't have significant assets, it's possible a judge could garnish your future wages to cover an award that exceeds your primary insurance coverage.
You should also consider umbrella insurance if you:
- Have a pet or pets that may bite or otherwise injure someone.
- Have a spouse in certain professions or high-profile positions, such as physician, attorney or politician.
- Have a swimming pool or other recreational equipment on your property.
Depending on the policy, umbrella insurance may also cover being sued for libel, slander, defamation of character, wrongful eviction or invasion of privacy.
Find Out More
Be sure to review your current homeowners and automobile insurance coverage with your insurance agent to see if you have adequate primary coverage. And ask about purchasing umbrella insurance. Premiums are generally very affordable, usually costing just a few hundred dollars a year for $1 million of coverage, with additional $1 million increments costing even less. It's a small price to pay for additional peace of mind.
Minimum Liability Insurance Requirements for Private Passenger Vehicles in California*
California's required minimum liability insurance requirements are quite low and are unlikely to be enough if you are involved in a serious accident and sued. Talk to your insurance agent to find out what your current liability limits are to determine whether he or she recommends increasing them.
- $15,000 for injury/death to one person
- $30,000 for injury/death to more than one person
- $5,000 for damage to property
* Source: California Department of Motor Vehicles, dmv.ca.gov.