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There is one additional policy that all homeowners must seriously consider. Since liability lawsuits today are typically for a $1 million or more, make sure you carry personal liability limits of, at the very least, $300,000 to $500,000. But even those limits will not be sufficient in the event of a claim that you might be liable for. We say "might" because you can be sued by anyone, even if you are ultimately freed of any legal responsibility for the injuries. It is wise to have a personal excess umbrella liability policy. This type of coverage is available in addition to the personal liability protection provided by your homeowner's insurance.

Umbrella limits are typically for $1 million or more. The premium for such coverage is modest, usually $200 to $300 annually. Umbrella liability coverage does require underwriting and may not be available in certain situations. An umbrella kicks in when the coverage provided by your home or auto policies is used up. It also may provide coverage for some lawsuits not covered under homeowner's or auto insurance policies.

Umbrella policies protect the insured against lawsuits involving:

• Bodily injury
• Property damage
• Personal injury (libel, slander, invasion of privacy)

Umbrella policies do not cover:

• Intentional misconduct
• Criminal matters

IMPORTANT NOTE: Not all personal excess liability policies are "umbrellas". A true umbrella will provide excess protection when the primary limits are used up and will also provide protection in certain instances where a home or auto policy does not provide coverage. Some policies will only provide insurance when there is coverage under a primary policy. These still provide valuable protection but are not as broad as the true umbrella. One clue is to make sure the word "umbrella" is part of a policy name.

The cost of an umbrella policy is approximately $200 to $300 per year per million dollars of coverage.

IMPORTANT NOTE: Make sure this liability coverage is coordinated with your homeowner's and auto insurance. The underlying insurance requirements will vary by company. Typically, you would need to carry personal automobile liability coverage of at least $100,000 per person and $300,000 per occurrence, and homeowner's personal liability of $300,000. The umbrella policy should take effect after these limits are met.

How Big an Umbrella Do I Need?

You can never buy "too much" liability insurance. What you need to do is balance the absolute needs versus the cost effectiveness of obtaining higher policy limits. In selecting the combined limits of your homeowner's, automobile, and umbrella policies you need to take into consideration not only your net worth but also your future earnings potential along with any known inheritances from which you may benefit.