Do umbrella policies really extend my coverage?

Nowadays, people are becoming more aware of insurance, its coverage and its costs. Another type of policy will cover your legal liability, one of the most important policies out there.

A personal liability umbrella policy is the policy that will be able to cover your legal liability. By providing an extra layer of protection, this umbrella policy will supplement the liability coverage that you already have through your auto and home insurance.

Umbrella policies are for everyone who might be at risk if they are responsible for a serious accident and for people with assets. These policies aren't just for the wealthy.

The person bringing the action might go after your personal assets or your home to cover damage if you don't have enough liability coverage to resolve a claim or a lawsuit. Umbrella policies will be able to cover claims caused by your dependents, your pets or you.

After the liability insurance in your auto and homeowners policy runs out, the umbrella policies kick in. For example, the umbrella policy will pay claims above the amount of your liability coverage of your home insurance policy to the limit selected.

Umbrella policies pay in addition to your liability limits, says Jeanne Salvatore, vice president for consumer affairs at the Insurance Information Institute. After you have exhausted your auto liability coverage, your umbrella coverage would probably kick in. 

However, keep in mind that unless both home and auto insurance coverage is with them, many companies won't sell you an umbrella policy. Additionally, your insurer might limit your auto or homeowners liability amount to a certain level. 

Nonetheless, even if you purchase the most protective and the most expensive umbrella policy, that doesn't mean that, you will be protected against virtually every claim and lawsuit. Just as there are exclusions in practically every single insurance policy, the umbrella policy will have its own limits.

Claims arising out of a business endeavor won't be covered under the umbrella policy. Don't forget that if you own a business - even a small one - an umbrella policy won't save you from your business claims. You will have to purchase separate business insurance in order to protect yourself properly.

You should also keep in mind that the umbrella policy won't necessarily pay for penalizing damages, depending on the law in your state. These damages may not be covered by any insurance policy because they are awarded to punish wrongdoers for their conduct.

Never purchase unnecessary insurance. You can identify if you need umbrella insurance by analyzing your assets that might be at risk and the risk of you being sued.