How much umbrella insurance should I buy?

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 Q. I have insurance for my car and my house. I’ve heard that umbrella insurance is also a must, but how do I decide how much coverage to buy? And exactly what would umbrella insurance cover?

A. Umbrella insurance is a terrific addition to anyone’s financial plan.

They provide additional coverage if a lawsuit is brought against you and the verdict exhausts the liability limits on your car, boat, or homeowners insurance, said Alison Williams, a certified financial planner with Stonegate Wealth Management in Oakland.

“This type of coverage is easily the best buy with regards to insurance,” she said. “It costs about $200 to $400 for the first $1 million of coverage, then approximately $100 for each additional $1 million,” she said.

In addition to excess liability insurance on your home and auto policies, an umbrella policy can be used to cover defense costs, false arrest, libel, slander, defamation of character, and invasion of privacy, she said. It will also come into play if there is an event away from home, such as having an accident with rented boat at Jersey shore, and will include international events, such as having an accident with rented car in Europe.

“You cannot be over-insured for a lawsuit,” Williamsn said. “Our firm typically recommends a minimum of $2 million in coverage, $3 million where possible. This sounds like a lot, but if you’re involved in a serious car accident — 85 percent of umbrella policy payouts — you could be liable for not only medical bills, but also lost wages and pain and suffering.”

She said most insurance companies will insure up to $5 million, but there are some who will provide $10 million in coverage.

It’s important to note that insurance companies require minimum levels of liability coverage on your auto and home insurance policies before approving an umbrella policy, Williams said. These limits are typically:
• $300,000 per occurrence for personal liability, bodily injury, and property damage liability on your homeowners policy
• $250,000 per person for bodily injury and $500,000 per accident on your car insurance policy
• $100,000 per accident for property damage on your car insurance policy

For the best rates, Williams recommends you check with your existing insurance company because many give discounts if you have multiple policies.

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.