What Is the Benefit of an Umbrella Insurance Policy?

What Is the Benefit of an Umbrella Insurance Policy?

The primary benefit of an umbrella insurance policy is that it extends someone's personal liability coverage beyond what a standard home or auto policy provides. Higher personal liability protection increases the financial coverage in a worst-case scenario and reduces the risks of financial ruin, according to Insurance.com.

On a home policy, a person normally gets around $300,000 in liability coverage, reports Insurance.com. Insurance providers typically encourage people to buy umbrella policies that extend liability coverage to at least $1 million, according to Kiplinger. An umbrella policy picks up legal defense fees and settlement or judgment costs that exceed the benefits in a home or auto plan. If someone has $300,000 in home liability coverage and total legal expenses are $650,000, a $1 million home policy covers the excess liability.

Some insurance providers encourage people with greater liability risks or a high number of financial assets to protect to consider benefits ranging from $2 million to $5 million, states Kiplinger. Another major benefit of umbrella coverage is that it's relatively affordable. A $1 million plan ranges from $150 to $300 a year in annual premiums, according to Insurance.com as of January 2015. It costs approximately another $100 a year for each additional $1 million in umbrella coverage beyond that amount, reports Kiplinger.