Say you’re having a dinner party at your house.
Everything is going fabulously until a guest slips and falls on your patio, breaking bones and requiring a hospital stay.
It’s not anyone’s fault, but because it occurred at your home, your homeowner’s insurance kicks in. After that money was used up, however, you could be liable for any additional charges. And sometimes those charges include the costs of a lawsuit.
A personal umbrella insurance policy goes into effect once you are faced with a liability claim that exceeds your home or auto policy limit.
For a reasonable amount of money — say, between $150 and $450 for $1 million of coverage, depending on your risk — an umbrella policy can help protect your assets should you be at fault in a serious car accident or an incident covered by the liability on your home insurance.
Those without umbrella insurance could be sued for their assets, including equity on a house, bank accounts, investments and any additional property or vehicles. Your wages could even be garnisheed.
“You want to protect your net worth,” said Sally Anders, an AAA Arizona insurance agent who writes personal umbrella policies.
A policy often is written as an endorsement on your home or auto policy, but it’s possible — and usually more expensive — to obtain a separate personal umbrella policy. Most people bundle their umbrella policy with their auto and home policies.
Some people think they don’t need the extra coverage if they don’t entertain or drive much.
And perhaps that’s true. But here’s another scenario: You’re not home, but someone climbs over your fence, jumps into your pool and drowns.
Even if you don’t know the person, that person’s family could sue you — and win.
Of course, an umbrella policy isn’t for everyone. For people who don’t have investments and don’t own a home, one of these policies probably isn’t necessary.
“If you’re living on Social Security or don’t have any assets, you’re probably OK,” Anders said.
Having teen or elderly drivers living in your household can increase your liability, as can other circumstances.
Each umbrella policy requires a detailed approval process, Anders said. Policy seekers must answer a series of questions, including if they own high-risk items, such as a pool or trampoline, or multiple vehicles.
“Personal umbrella policies are generally inexpensive, and it’s difficult to argue that they’re a bad idea,” Anders said. “It’s better to be safe than sorry.”