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Ask Dave

Better Off Under The Umbrella

Tom isn't sure what an umbrella insurance policy is. Can Dave help him out?

QUESTION: Tom asks what an umbrella policy is and what its advantages are. Dave helps him out.

ANSWER: An umbrella insurance policy is a liability policy that adds liability coverage to your existing policy. Your homeowner policy or your auto policy might have a liability limit, meaning if someone was hurt in your home or in a car accident, they would cover you for that person’s liability up to, for example, $500,000.

If you have some assets, you now have a target on your back in our culture, because people tend to sue. If you’ve built up and have some money or something that is worth some money, then you want to carry liability coverage that equals more than that. You can buy a $1 million umbrella policy that picks up at the $500,000 mark and adds a million to it. So you end up with $1.5 million in coverage, and it only costs a couple hundred dollars a year. It’s a very inexpensive way to protect a bunch of your assets.