When do you need an umbrella policy?

When do you need an umbrella policy?
By David Florian • Bankrate.com

An umbrella policy is intended to provide supplemental insurance coverage in the case of a liability. While claims are most often made against umbrella policies after automobile accidents resulting in the death of another individual, any liability -- including death, injury, uninsured motorist, libel or slander -- would be covered.

Companies that sell auto and homeowners insurance usually sell umbrella policies, which are usually offered in $1 million increments, at an annual cost of $150 -- $250 per $1 million in coverage. Generally, the insurance company will require you to hold either its homeowners or auto policy before offering you an umbrella policy; this helps in the delegation of benefits.

Anyone can benefit from an umbrella policy -- especially someone who is likely to be quoted in a newspaper, a magazine, or through another media. Here's an example:

Let's say that you are sued for slander, and the plaintiff is asking for $1.5 million in damages. You have $500,000 in homeowners insurance with Company A, in addition to $1 million in umbrella coverage. That coverage would protect you if you lost the case, and Company A would absorb the cost of your defense because it is in their best interest if you are found innocent.