In today's lawsuit-happy society, your worst nightmare could consist of being sued for millions that your auto insurance won't cover and you cannot afford. You may think that this could never happen to you, but if you drive often it is a real possibility. This is when an umbrella insurance policy will come in handy to protect you from the cost of lawsuits - like an umbrella protects you from the rain. I'll explain what an umbrella policy covers with examples to help you decide if you need this extra coverage.

If you are thinking that you are already sufficiently covered with your current auto and home insurance, hold on. You may be wrong! Your regular insurance has a cap. For example, let's say that your auto liability insurance policy covers $250,000, you are involved in a fatal car accident and you are sued for $4 million. Your insurance pays $250,000 and you are personally responsible to pay $3.75 million. Ouch! Your savings are taken from you, your home, valuables and part of your salary for a lifetime. How could you have avoided this? With an umbrella insurance.

Umbrella insurance provides coverage above the limits of your regular insurance. It also covers certain situations that are not covered by other regular insurance policies. An umbrella policy covers the cost of injuries to another person's body. And not only in car accidents, it also covers dog attacks, injured visitors at your home or yard, etc. It also covers property damage liability including damage to other property and vehicles where you are at fault, damage that your pet can cause to others' property, and accidental damage to property caused by your child.

Umbrella insurance is not mandatory, but it certainly is useful. It makes sense for drivers and homeowners because it covers you when your regular insurance has reached its limit of coverage. You are also protected should you be sued for slander, libel, personal liability, false arrest, detention, imprisonment, malicious prosecution, etc.

An umbrella policy doesn't cover tangible property, it covers liability - your liability. Different insurance companies will offer umbrella policies with their own limitations, so make sure to check exactly what it covers and does not cover before purchasing it.

How much coverage is available with umbrella insurance? This varies by insurer, but the coverage limit typically starts at $1 million and can reach around $10 million. This type of insurance may sound expensive since the coverage is so high. But, the truth is that it is probably more affordable than you think. Consider it a protection for your assets and your future in the event of a lawsuit.

It may or may not be the cheapest option to get an umbrella policy with your current insurance provider.

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