Recently on our Insurance discussion board, a new Fool Community member, gracie105, asked an important question. She explained that she has $300,000 in liability coverage on her homeowner's insurance, while on her car insurance she carries coverage of $100,000 for each person, $300,000 per accident, and $50,000 for property damage. She then asked, "... is that enough?"
In other words, does gracie105 need umbrella insurance?
We're not talking about compensation for having a windstorm turn your umbrella inside-out. Umbrella insurance gives you an extra layer of coverage above the limits that your other policies, such as homeowners' and auto insurance, already provide. While most regular policies provide less than $1 million in coverage, umbrella policies let you add millions of dollars of protection that cover you after your other policies reach their limits.
As is often the case, this honest question elicited a bunch of helpful responses. (You can read the entire discussion, if you like.)
- NoIDAtAll explained that if you have significant assets that someone else's lawyer might want to go after, umbrella insurance can be worth your money. Another benefit is that it can cover "some additional exposures that are not covered at all in primary policies," such as defamation of character. Some plans can also kick in to cover some of the costs you incur from an accident after the primary policy reaches its limit.
- JAFO31 asked, "Have you recently priced the cost of an ER visit, surgery and a few days in ICU? Or even two upscale or one luxury car?" He offered an example from Edmunds.com: "2007 Honda Accord, EX-L V-6 2dr Coupe w/Navigation (3.0L 6cyl 5A) -- $28,723. Total two of those in one accident and your property damages are $57,446."
The bottom line
Many experts say most of us would do well to carry at least $1 million worth of coverage, even if we don't have a net worth that high. After all, someone might still sue you for big bucks, expecting to garnish your future wages if he or she wins. Even $5 million of coverage isn't crazy for many of us, and the coverage might not cost all that much -- a $1 million policy can run you $200 a year or even less.
Another way to learn your options is to spend some time at the websites of insurance companies. Many companies, including AIG (NYSE: