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Use an umbrella policy to increase your auto insurance liability coverage

By Ryan Hurlbert on February 10th, 2011

When I was a kid, I thought an umbrella policy was one issued only by the Travelers because all of Travelers ads featured a red umbrella. Since then, I've learned that it can be a valuable part of insurance protection, especially if you follow certain tried-and-true buying tips.

Umbrella insurance policies defined

An umbrella policy is sometimes called an excess-liability policy. It provides personal liability protection over and above the liability limits on your auto insurance or homeowner policy. Once the limits of liability of the underlying homeowners or automobile insurance policy have been exhausted, umbrella coverage kicks in and pays the rest of the claim, up to the policy limits, according to the Insurance Information Institute.

Umbrella coverage limits range from $1 million to $5 million, rising in million-dollar increments. They were once only recommended to people with lots of assets to protect, but are becoming increasingly common among such groups as:

  • Those with future earnings to protect
  • Homeowners with dogs, swimming pools or trampolines
  • Drivers who spend a lot of time in rush-hour traffic
  • Business people who drive for a living
  • Parents who often have their children's friends in the minivan

Umbrella policy requirements and buying tips

As an excess-liability policy, umbrella policies typically require higher liability limits on the policyholder's underlying auto insurance and homeowner insurance. Typically, $300,000 is required on a homeowner policy. For auto insurance policies, the liability limits are generally $250,000 per person and $500,000 per accident in bodily injury protection, with $100,000 in property damage coverage.

When considering an umbrella policy, you will want to know if it includes excess uninsured/underinsured motorist coverage. If you increase the limits of liability on your auto insurance policy, you are generally allowed to increase your uninsured/underinsured motorist coverage to match. If you are interested in umbrella protection, remember to consider the cost involved, the coverage provided and the limits required on the underlying policies so you can make an informed decision.

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