Many consumers understand the value of buying excess liability insurance — better known as umbrella insurance — but what they’re not sure about is just how much coverage they need.
Umbrella insurance sits on top of your automobile, homeowners and watercraft liability coverage.
If you injure someone in a car accident or someone slips and falls on your property, your auto or home insurer will pay for damages up to the liability limits of your coverage.
If the damages exceed those limits, the injured party may sue you for the difference.
An umbrella policy will pay a judgment or settlement if you’re found to be at fault, and will pay for your defense even if you’re not found at fault.
Umbrella insurance is generally sold in increments of $1 million. It costs about $150 a year for each $1 million of coverage up to $5 million.
Most insurers will sell you an umbrella policy only if you buy your homeowners or auto policy from them and carry a minimum amount of liability coverage — typically $300,000 for homeowners insurance and, for auto insurance, $250,000 for bodily injury to one person and $500,000 per accident, says the Insurance Information Institute.
A car accident is the most likely scenario in which a loss would trigger excess liability coverage because a permanent disability or fatality could easily result in a large judgment, said Spencer Houldin, president of Ericson Insurance Advisors, in Washington Depot, Conn.
Your risk is higher the more you drive and if you insure teen or elderly drivers.
You also might be at higher risk if you employ domestic workers or own a swimming pool or trampoline, a dog, or a boat, RV or snowmobile.
You are more vulnerable to a lawsuit if you’re active on social media or serve on the board of your homeowners or condo association or a nonprofit organization.
If you checked just one of the risk factors listed above, you might need umbrella coverage, said Chubb Insurance. If you selected several, your liability risk is higher than average.
Consider adding an endorsement to an umbrella policy for excess uninsured/underinsured motorist coverage, which covers you not only as a driver but as a passenger, bicyclist or pedestrian if you’re hit and the at-fault driver doesn’t carry enough insurance. It costs $100 to $200 per policy.
If you serve as a volunteer on a nonprofit board, your homeowners and umbrella policies typically cover you for bodily injury and property damage, but probably not for all potential lawsuits, Houldin said.