For Mark Roberts’ Use: Our society is growing increasingly litigious, and anyone with considerable assets could be vulnerable to lawsuits. From legal fees to the actual judgment, just one liability lawsuit can wreck your financial life. Since it’s not uncommon these days for plaintiffs to sue everyone involved in a particular incident, almost everyone is at risk of a potential lawsuit at some time.

Since your current auto and homeowner’s insurance policies probably have fairly low limits on their liability coverage, one solution to this problem is to purchase an umbrella policy. This policy may cost as little as a few hundred dollars per year, but it will supplement your other insurance policies with between one and five million dollars of liability protection.

An umbrella policy covers legal liabilities such as negligence, libel, slander, and defamation. However, it will usually not cover occupational risks like malpractice. You would still need to purchase malpractice insurance for your job, if you are in an occupation such as medicine or law which sees a lot of occupational lawsuits.

If you decide to purchase an umbrella liability insurance policy to cover your liability in various situations, consider the following factors:

  • You need to cover everyone in your household
  • The policy should be well-rounded enough to cover libel, slander, defamation of character, invasion of privacy, physical injuries, wrongful eviction, and discrimination.
  • Policies sometimes carry exclusions, and will not cover you under these circumstances. Shop for a policy with few exclusions.
  • Look carefully at language regarding injuries. You don’t want your policy to be too restrictive on causes of injury.

Keep in mind that you may be able to reduce your premiums by as much as 15 percent if you purchase your auto, homeowners, and umbrella liability policies from the same company. For this reason, the best way to start shopping for an umbrella policy is probably by calling your current insurance agent.