Umbrella policies provide an extra layer of protection in addition to your existing homeowner's or auto insurance policies. Your policies already provide liability coverage, but it may not be enough if a claim is very large or if you are ever sued. An umbrella policy extends your personal liability protection to include false arrest, false imprisonment, malicious prosecution, defamation, invasion of privacy, wrongful entry, or eviction.

On your existing policies, you may carry $300,000 in liability coverage. What would you do if you were sued and taken to court only to end up with a $500,000 settlement? Where would that additional $200,000 come from? What assets would you have to liquidate in order to raise the money? Everything you own could be at stake. An umbrella policy will provide coverage if you are ever faced with a claim so large that it exceeds the limits of your existing insurance. In a world where suing your neighbor has become commonplace, an umbrella policy can protect your future earnings and your possessions from being taken away from you.

The cost of an umbrella policy is surprisingly affordable. The cost for an umbrella policy is based on how much additional coverage you want. For roughly $200 a year, you can add an additional $1,000,000 in liability coverage. Policies can be purchased for as much coverage as you may believe you need, usually in million dollar increments. The answer to the question of how much you need is answered by how much you own. If you have accumulated a sizeable estate or have considerable earning power for the future, you may benefit from such a policy. An umbrella policy will provide the extra security that would protect your present or future assets from loss. If you don't own property and have few assets at this point in time, the extra layer of protection provided by an umbrella policy may not be needed.

Insurance companies usually require that your homeowner's and/or auto insurance policies are purchased from them before you can buy an umbrella policy. Whether it's mandatory for you carry both your homeowner's and automobile policies with the same carrier in order to buy an umbrella policy is typically stipulated by the insurance company. In order for the umbrella policy to pay out, your other liability coverage must be exhausted first. The deductible on an umbrella policy might be $300,000 or the amount of liability coverage that is carried on your main policy. You may be expected to purchase the maximum amount of liability coverage from your carrier on your main policies before an umbrella policy is available to you. To your benefit, it is usually more affordable to purchase an umbrella policy than to add additional homeowner's coverage. It's definitely worth investigating with your carrier. See the State of Washington'sConsumer's Guide to Homeowner Insurance for a description of liability policies and umbrella coverage.

Your umbrella policy is ideally from the same insurer as your homeowner's and automobile insurance. If you should ever need to tap into your umbrella policy, the ease of dealing with a single company at a time of great stress cannot be underestimated. Working with a single insurer also minimizes the potential for coverage gaps that may occur if your insurance is divided among different insurance companies. The protection that an umbrella policy can offer will surely provide the peace of mind you'll need on that very rainy day. For an interesting article explaining why you may need an umbrella policy, read The Umbrella, A Holiday Party Essential.

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• The Perils of Home Ownership - Whether required by your lender or if the house is paid off, homeowner's insurance is a godsend when those acts of God occur. Homeowner's insurance enables you to start over should disaster strike, essentially keeping a roof over your head. Understanding the basics will help you incorporate the right level of insurance into your financial management plan. What should be covered? Just what does it cover, and what do you have to ask for? What is the difference between insurance for a home and insurance for a condo? Why do I need liability coverage? With a grasp on how to protect your home, you also protect yourself.
  
  
• How Much Protection is Your Homeowner's Insurance Really Providing You? When deciding how much coverage to purchase, appraise the items in your home. Insurance carriers will use either appraised or replacement value when reimbursing your for damaged or destroyed items. If you underestimate the value or your possessions, you may not get back enough to replace them. Do this before purchasing the coverage as part of your overall financial plan to ensure that the premiums you pay are really protecting your personal items.
  
  
• Do You Know What's Not Covered by Your Homeowner's Insurance Policy? Typical exclusions most people know about are flood, earthquake, and nuclear accident. What about lesser-known not-covereds? Pollution, intentional damage caused by you, loss due to power failure--when completing your overall financial plan, it's important to make sure that beyond obtaining discounts, your situation is also right for your insurance coverage, so that you can pay the right premium with the right add-ons.