Recently I was asked if I wanted to take out an umbrella policy by the company that issued my homeowner's policy. They told me it would cover me against possible lawsuits, above and beyond my homeowners policy. They suggested a case where a child hit another child at school with a baseball bat and the offending child's parents were sued for $500,000 -- well above the $300,000 limit on their homeowners insurance. Does this type of policy make sense for most homeowners?
It can be a good idea to buy an umbrella insurance policy if your assets plus your income over the next few years is greater than the maximum liability coverage you can get through your auto and homeowners insurance policies (generally $500,000 to $1 million). Otherwise, a lawsuit could wipe out a big chunk of your savings.
The policies are also valuable if you have a pool, teenage driver, second home, a high public profile, if you frequently entertain or do anything else that increases your odds of getting sued.
The policies are inexpensive for the coverage you get, ranging from $100 to $200 per $1 million of coverage. Most companies offer up to $5 million limits, and they generally require you to buy your auto and/or homeowners insurance through them, too. Because those polices are more expensive and harder to qualify for than umbrella policies, it's a good idea to ask your current insurer if it'll sell you an umbrella before shopping around elsewhere. If your auto or homeowners insurance company won't sell you an umbrella but you're happy with their coverage otherwise, consider a company that sells stand-alone umbrella policies, which an independent agent can help you find (visit the Independent Insurance Agents & Brokers of America Web site for listings of independent agents in your area).
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