Umbrella Insurance: Putting Another Layer Between Lawsuits and Your Wealth

As your wealth grows, so does the importance of protecting what you’ve accumulated. One risk to be aware of is when an event such a serious accident or lawsuit results in damages that exceed the liability coverage provided by your standard insurance policies.

This is where umbrella insurance can help by providing additional liability protection after the limits of an underlying policy, such as homeowners’ or auto insurance, have been reached.

Here are five ways an umbrella policy can add another layer of protection between lawsuits and your wealth:

Keeping assets shielded from a large judgment

Start by comparing your liability coverage with the assets you could potentially lose in a lawsuit. While retirement accounts and your primary residence may receive some protection under federal or state law, other property such as taxable investments and cash may be more exposed.

An umbrella policy can help close this gap by adding a significant amount of liability coverage above the limits of your existing policies.

Protecting future income

A large judgment can potentially reach beyond the assets you own today. Depending on state law, a creditor may be able to garnish a portion of your future earnings or pursue other income until the judgment is paid.

Umbrella coverage can help reduce that risk, making your future income another reason to consider how much liability protection you carry.

Getting protection for less-obvious lawsuits

Umbrella insurance can offer something beyond higher liability limits – protection against certain types of lawsuits your other policies may not cover, or that receive little or no protection under a standard homeowners’ policy, including libel, slander, invasion of privacy and wrongful eviction.

Review these additional protections when comparing umbrella policies, as coverage can vary considerably from one insurer to another.

Helping cover the cost of a legal defense

Winning a lawsuit can still end up being expensive. For covered claims, an umbrella policy may pay attorney fees, court costs and other defense expenses. Better yet, some policies pay these costs separately from the liability limit, preserving more of your coverage for a potential settlement or judgment.

Check how legal defense costs are treated when comparing policies.

Extending protection beyond your home and car

Your liability risks don't stop with your home and car. Depending on the policy, umbrella coverage may also be available for incidents involving rental cars, boats, recreational vehicles, vacation properties and even certain accidents that happen while traveling.

As you add assets and activities to your life, review your umbrella policy to make sure these additional risks are covered. Some may require their own underlying insurance before your umbrella coverage applies.

These are several ways that pairing umbrella insurance with your existing policies can provide an additional layer of protection for the wealth you’ve worked hard to build. As your wealth grows, periodically reviewing your coverage can help ensure that protection continues to grow along with it.