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.