Figuring out how much insurance you need and what kind can be a daunting prospect. If you’ve ever bought homeowners insurance, you may have been asked if you’d like an umbrella policy as part of your insurance coverage. In order to get the best possible coverage and to protect yourself from any unforeseen circumstances that may not be covered under an normal policy, it may be necessary to add extra liability coverage in the form of an umbrella insurance policy, to your auto and homeowners insurance policies to protect you and your family.

Here’s why.

Protection from Lawsuits

Kiplinger recommends you have at least a $1 million umbrella policy to provide liability coverage that extends beyond your auto and homeowners insurance policies, even if you have less than $1 million in assets. If someone ever sues you, and you don’t have this umbrella policy, you could be responsible for paying legal fees from both current and future assets. Even if you eventually win the case, legal fees will eat into the settlement because they add up so quickly. It’s wise to get liability insurance limits that total as much as your net worth — more if you can afford it. This additional lawsuit coverage will take care of defense costs as well as liability coverage for lawsuits that don’t fall under your auto or home insurance. In a broader sense, umbrella policies provide coverage beyond your normal coverage, offering:

• Property damage liability
• Slander/libel
• Bodily injury liability
• Legal fees and defense

You Never Know…

It’s impossible to tell if, when and whom you will injure in the future, whether through a car accident or some other scenario. Just think of this possible example: You injure a professional athlete, CEO, or doctor. Perhaps they can’t work for 10 years due to their injuries. You would be responsible for paying their lost wages, medical bills and compensation for pain and suffering, with lost wages alone starting at $3 million and running up from there, says Bankrate. It’s better to buy an umbrella policy now, with at least $1 million in coverage, than be left holding the bag later. If and when something does happen and you don’t have an umbrella policy, it will be too late to add one.

Peace of Mind

If you’re concerned about losing income and assets over a potential lawsuit, you need an umbrella policy. Considered a wise purchase in the insurance industry, this is one of those things that isn’t very exciting to buy initially like a new car or vacation, but it gives you immeasurable peace of mind knowing if you had to use it, it’s there and it will protect you. Plan on paying between $150 and $200 for the first $1 million of coverage, then about $100 for each $1 million you add on.

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