You never know what life will hand you, but that doesn’t mean you can’t be prepared for unexpected financial difficulties, resulting from certain kinds of lawsuits. Standard policies offer some coverage, but you may want an extra layer of protection in the form of an umbrella policy.

What Is Umbrella Liability?

If you are ever sued, your standard homeowners or auto policy will provide you with some liability coverage – paying for judgments against you and your attorney's fees – up to a limit set in the policy. In our litigious society, however, you may want to have an extra layer of liability protection. That's what a personal umbrella liability policy provides.

An umbrella policy kicks in when you reach the limit on the underlying liability coverage in a homeowners, renters, condo or auto policy. It will also cover you for libel and slander.

Typically, you can buy a $1 million personal umbrella liability policy for approximately $150 to $400 per year.  Higher limits are available – usually up to $5 million on personal umbrellas.

Because the personal umbrella policy goes into effect after the underlying coverage is exhausted, certain limits must usually be met to purchase this coverage. Most insurers will want you to have about $250,000 of liability insurance on your auto policy and $300,000 of liability insurance on your homeowners policy before selling you an umbrella liability policy for $1 million of additional coverage.  Generally, you would purchase an umbrella policy from the same company carrying your auto insurance coverage.