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A Guide to Umbrella Insurance Policies for Lawsuit Protection

Updated on March 23, 2015
The risk of a lawsuit is reason enough for many people to invest in umbrella liability coverage.
The risk of a lawsuit is reason enough for many people to invest in umbrella liability coverage. | Source

You might well think that your ordinary automotive, homeowner’s and similar insurance policies protect you from any potential liability. Unfortunately, even with such policies in place, you could still find yourself on the wrong end of a lawsuit under certain circumstances. That is not to say, however, that you cannot take precautions in advance to ensure that you are protected.

Purpose of an Umbrella Imsurance Policy

Umbrella policies are designed to protect any assets you own currently, as well as any you might own in the future, from this type of lawsuit. Some feel that only the independently wealthy need worry about being sued, and the ensuing financial damage from losing such as lawsuit, since they feel they do not have enough assets to be worth paying to protect. However, a lost lawsuit could result in a garnishment of your wages and other income sources – meaning an umbrella policy could be a lifesaver no matter what your income level.

An umbrella liability insurance policy can ensure that you never worry about being sued.
An umbrella liability insurance policy can ensure that you never worry about being sued. | Source

Coverage

Most umbrella policies have fairly high deductibles; after all, they are not designed to cover relatively minor expenses, only the major costs associated with a lawsuit. The deductible for the umbrella policy will generally be met by your ordinary automotive or homeowner’s insurance. For example, suppose that you are sued in the aftermath of a car accident for $750,000, and you have an automotive insurance policy that covers up to $200,000 and your umbrella policy covers up to $1,000,000. In that case, your umbrella policy would cover the $550,000 your automotive policy did not.

The apparent rise in frivolous lawsuits has left many considering umbrella liability coverage to protect themselves.
The apparent rise in frivolous lawsuits has left many considering umbrella liability coverage to protect themselves. | Source

Customization

Fortunately, this high deductible means that a typical umbrella policy will cost only $30 to $40 per month, or even less in some cases. Of course, you can customize an umbrella policy however you see fit. For example, you can set this type of policy up to cover boats, rental property, dependent children and the like, as well as a wide variety of different lawsuit types, including slander, libel and false arrest. You have the flexibility in selecting your policy to ensure that you and your family are completely protected.

If you wish, you can customize your umbrella liability policy to protect yourself from the particular types of lawsuits to which you feel vulnerable.
If you wish, you can customize your umbrella liability policy to protect yourself from the particular types of lawsuits to which you feel vulnerable. | Source

Exceptions

That is not to say, however, that umbrella policies will cover absolutely everything. You will need to check the fine print of the policy you are considering for specifics, of course, but many do not cover unusual or extreme activities like race car driving or similar risky pastimes. In addition, most umbrella policies will not cover activities related to a business you own or operate, even part-time. You would need separate insurance policies strictly for those businesses in that type of situation. Ordinary umbrella policies are only designed to cover personal activities that fall within their included categories. Of course, these categories and exceptions can vary substantially from one policy and company to another, so make sure you closely examine each policy’s details before you select one.

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Other Requirements

You should also remember that umbrella insurance is not designed to function as a primary policy. Therefore, most umbrella policies will require you to have primary policies, such as automotive insurance and homeowner’s insurance, in place previously. If those policies are not sufficient for your needs, an umbrella policy could be the ideal solution.

Who would you advise to take out an umbrella insurance policy, and why?

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