For homeowners and drivers, umbrella coverage kicks in when limits are exceeded on normal insurance.
You cause an accident on the freeway and a dozen other drivers or passengers are injured in the pile-up.
Your teenager hosts a party at your house, and a guest gets drunk and gets hurts.
You make an offhand remark about a neighbor at a party and are accused of slander.
These situations have one thing in common: You can be sued for amounts beyond the coverage limits of your car or home insurance, or for actions like slander that aren't typically covered by ordinary insurance.
The solution is an umbrella policy, a relatively cheap policy that kicks in when your normal coverage is inadequate. Umbrella policies don't cost a lot because they don't pay out unless coverage limits are exceeded for your regular insurance. It costs around $150 to $300 a year for a $1 million umbrella policy. You can buy additional coverage on top of that in million-dollar increments at even cheaper rates.
One thing to remember: Insurers generally won't sell you an umbrella policy unless you already have sufficient liability coverage on your primary insurance, usually $250,000 on your automobile policy and $300,000 on your homeowner's policy. If you don't carry that much insurance currently, buying it will be an additional cost on top of the umbrella policy itself.
One way to offset the added expense: Raise the deductibles on your home and auto insurance. This makes sense. The purpose of insurance is to protect you from events that will crush you, not to save you a few hundred dollars through a lower deductible if you get in a fender bender.
Every time we buy a refrigerator or iPhone or even a set of tires, we are pressured to buy an extended warranty, which is effectively an insurance policy. But ask yourself: If your phone breaks or your refrigerator goes on the fritz or you blow out your tires, will your financial security be imperiled? Probably not.
In the right situation, an umbrella policy can save you from financial ruin. Here are nine situations where one protects you.