Umbrella liability insurance: Why you may want that extra layer of protection

“The United States is the most litigious society in the world.”

While we sometimes shake our heads at the ridiculous lawsuits that make headlines, the fact still remains that accidents happen, and regardless of intention, people do get held responsible financially - sometimes at a painful price.

Could a lawsuit happen to you?

Although the majority of liability claims in this country are related to car accidents, you could be sued if someone falls down your stairs, your balcony collapses during a party, or if you have a pool on your property that a child accidentally falls into. If you serve on a nonprofit board, you may have liability risk for decisions you make while serving on that board. And if you regularly blog about controversial topics or rant on Facebook, you may face a suit from a litigious individual who believes you’ve damaged their reputation. Yes, it happens.

You have more to protect than you think

Don’t assume that if you don't have $1 million to lose, you don't need liability protection. In Florida, your retirement funds and your home (if you’ve filed for homestead) should be fairly well-protected from liability risk, but other investments (if not properly titled) - and your future earnings - could be at risk if a judge allows someone to garnish your wages to pay off a settlement.

What can you do about it?

Umbrella insurance is a form of liability insurance that supplements your basic liability policies, such as auto, home or renters insurance. An umbrella liability policy covers a much higher limit and goes above and beyond claims directly relating to your home and auto. The main purpose of your umbrella policy is to protect your assets from an unforeseen event, such as a tragic accident in which you are held responsible for damages or bodily injuries.

Umbrella policies also provide a broader form of coverage and can help cover legal fees, false arrest, libel, and slander. If another party files a lawsuit against you, your umbrella coverage will pay for the damages you’re legally responsible for - up to the policy limit.

How much coverage should you get?

Consider three things:

1. The risks you may face - your risks as a homeowner or landlord, how much you drive every day, or potentially dangerous activities you participate in that could cause risk to others.

2. The value of your assets - Look at your net worth statement. The more assets you have that are not “naturally” asset-protected, the higher the umbrella policy limit you should consider.

3. The potential loss of future income - If you’re on track for a high paying career, you could be involved in a lawsuit that can target money you haven’t earned yet.

The cost of coverage of umbrella liability coverage depends on how much you own. The average cost for a $1 million umbrella liability policy is usually $200 - $400 annually. But remember: an umbrella policy should start where your auto and homeowners liability coverage ends. If your umbrella coverage starts when losses exceed $500,000, make sure your auto and homeowners policies provide liability coverage up to $500,000 - and not less! If there’s a gap, you’re on the hook for the difference.

So before you think “this could never happen to me,” you may want to evaluate your risks with the help of a trained insurance or financial planning professional. It could be well worth the time and cost some

day.

This story was originally published May 31, 2016 at 11:34 AM with the headline "Umbrella liability insurance: Why you may want that extra layer of protection."