It’s unspeakable, unthinkable – you or your family member cause an auto accident that kills or seriously injures a passenger in the other car. It gets worse; the injured party sues you for hundreds of thousands of dollars and wins!

How could you pay that much? Your automobile insurance might cover part of it, say $100,000 to $300,000. What about the rest? You could lose almost everything for which you have worked for a lifetime and you could still be paying years from now.

Unless, of course, you are among the growing number of people who own a personal umbrella insurance policy. In such a situation an umbrella policy would kick in to cover the balance of the judgment thereby saving your assets and also avoid future wage garnishment.

If you think it’s unlikely that you’ll ever need such protection you’re right. Accidents that result in claims for huge amounts are rare. That’s precisely why you can get $1 million worth of extra insurance for $100 to $300 a year. Umbrellas in additional amounts are also available.

Who needs an umbrella?

The need depends on your vulnerability. When assessing whether you’re vulnerable begin by considering that the vast majority of claims under umbrella liability policies, 80 to 90% at one company, spring from auto-related incidents. If you drive a car then you’re at risk!

But it’s not just car accidents that you have to worry about. Consider the following situations in which an umbrella policy could pay off; a friend breaks a leg after slipping on your basement steps; a babysitter is partially blinded when she is poked in the eye by one of your kids; your dog bites and disfigures a neighbor; a cyclist with whom you collide suffers a disabling injury.

An umbrella policy can extend your protection to situations in which you would otherwise not be covered. For example, unlike your basic auto insurance, it covers you when you rent a car in any foreign country as long as you buy enough of the rental company’s liability coverage.

Most umbrella policies would also protect you if you were sued for libel, slander, defamation of character or invasion of privacy. If you are wondering why you might need to worry about such things, note that cases have arisen among “friends” in social settings in which one person accused another of lying.

You might scoff that such scenarios are merely evidence of a lawsuit happy society. But remember that even if a court ultimately rules that a suit is without merit you still have to defend yourself against it. That in itself can be expensive. Both primary and umbrella insurers have the obligation to defend you even if a suit is determined to be frivolous and in most cases they do it without cutting into the face value of your policy.

Whether you should buy an umbrella policy depends almost as much on your tolerance for risk as it does on the assets you want to protect. At some point, as your assets grow not having an umbrella policy is foolhardy.

Take this quick test to measure the risks you face. In most cases, the more often you answer yes, the more likely that you need an umbrella policy. But for some people one “yes” answer is sufficient to make them candidates for this insurance.

• Do you own your home or condo?
• Is there are teenager driver in the family?
• Do babysitters or cleaning people work in your home?
• Do you have a swimming pool?
• Do you ever leave your home in the care of a house sitter?
• Do you regularly ferry other people’s kids around in your car?
• Do you have a big or excitable dog?
• Are you active in sports such as golf, biking, skiing or mountain climbing?
• Do you own a boat?