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I'll Always Have Umbrella Insurance for These 2 Reasons – The Motley Fool

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by Christy Bieber | Published on Nov. 10, 2022
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An umbrella policy is important to me for two big reasons.
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I have purchased many different kinds of insurance, including homeowners insurance, car insurance, and life insurance. But in addition to these types of common coverage, I also have another important form of protection as well: an umbrella policy.
Unlike some kinds of policies, such as auto insurance, an umbrella policy is not required to have. But despite this, I will always carry this kind of insurance. And there are two very important reasons why that’s the case.
The biggest reason why I have chosen to get umbrella insurance is because it provides a lot of added protection for my financial assets.
See, auto insurance and homeowners insurance both provide liability coverage. But there are policy limits on how much the insurer will pay out if something goes wrong. If we were to get into a car accident or if something happened to someone in the swimming pool at our house or if something else went wrong, there’s a chance we could be sued for an amount that exceeds those limits.
If an accident victim sues for an amount above the insurance policy limits and wins, this means we could be held personally liable for covering the excess losses. We don’t want to take a chance of that happening.
This is a concern for anyone who has a reasonable amount of assets or who makes a good income. A personal injury lawsuit could lead to liens on property, wage garnishment, or a whole host of other undesirable consequences.

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Unfortunately, no one can ever predict whether an accident will happen, and no one ever wants to think it could happen to them — but that’s not the reality. An umbrella policy offers added protection in this worst-case scenario. It serves as a type of secondary coverage so once the policy limits for liability coverage have been reached on other kinds of insurance, it will pay out for excess losses.
Our umbrella insurance policy provides $1 million of coverage on top of the liability insurance our car and homeowners insurance policies offer. With so much added protection, it is extremely unlikely our personal assets would be at risk, even in a disaster scenario.
While I could have simply added more protection to my home and auto insurance so I had higher liability limits, this would have ended up raising my premiums by a pretty hefty amount. The umbrella insurance policy, on the other hand, is much less expensive.
My umbrella insurer requires me to carry a certain amount of liability protection on my home and auto policies. I carry the minimum they require, and then have my $1 million umbrella policy in place. Doing it this way saves me a few hundred dollars per year over what it would have cost me to go up to a $1 million limit on both my home and auto insurance.
Since an umbrella policy saves me money and gives me more peace of mind since I know I’m covered for any type of accident in my home or car, it’s an absolute no-brainer for me to keep this coverage in effect forever. And others who want comprehensive asset protection may find this kind of coverage makes sense for them as well.

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Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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