How to Insure Your Income: Who Needs an Umbrella?

Anyone with current or future assets to protect may need personal umbrella coverage. When a liability judgment is handed down that exhausts your underlying policy limit, where does the remainder of the money come from? Well, you are responsible, so it must come from your assets. Perhaps your house will have to be sold, or retirement IRAs will need to be cashed out, or other assets must be liquidated in order to make payment on the judgment.

If your assets are exhausted and a judgment is not fully satisfied, future earnings may be attached or garnished in further settlement of the outstanding judgment. A major liability loss can wipe out assets that took a lifetime to accumulate.

While common personal liability policies (such as a homeowners or personal auto policy) do provide coverage for their respective liability situations, often the limits aren't high enough to pay all the damages that could be awarded in even a moderately severe case. What if you have a $250,000 limit for automobile bodily injury, and a court enters a judgment of $500,000 against you?

Is anyone exempt from personal liability exposures? Except for minors, the legally incompetent and the indigent (who have no assets at risk), most of us have exposures. How can anyone who drives an automobile be absolutely positive he or she will never be involved in an at-fault accident? How can any homeowner be certain that no visitor will ever be injured on the premises? How can anyone be sure that a personal liability claim will never arise out of personal actions or statements? You simply can't.

People are being sued today for various liability events that aren't covered by their underlying liability policies. In many cases, an umbrella policy will cover an event that is not covered by the underlying insurance.