If you have substantial assets, you may want to consider an umbrella liability policy. An umbrella policy provides liability protection above and beyond the liability coverage offered under your auto and homeowners or tenant policies. Here’s an example. Let’s say you have a $100,000 liability limit on your homeowners policy and you experience a covered liability loss of $400,000.Your homeowners policy will cover the first $100,000 of loss. If you do not have an umbrella policy, you are personally responsible for paying the additional $300,000 of loss. However, if you have an umbrella policy, that policy will kick in, relieving you of the burden of a huge, and potentially devastating, out-of-pocket payment.

An umbrella policy not only offers you higher liability limits, but it also provides a broad range of coverage in case you are sued. An umbrella policy offers you personal injury protection—a coverage generally not found in primary policies. Personal injury includes damages from false arrest and imprisonment, invasion of privacy, or defamation. It also covers legal fees for lawsuits filed against you, and may cover any liability you may face from serving on the board of a civic or charitable organization.

There are limitations to an umbrella policy. Generally, it won’t cover any losses resulting from a business endeavor, intentional damages, or punitive damages—damages that are beyond any actual monetary loss.

Umbrella policies are relatively inexpensive. Depending on the liability limits you carry on your auto and homeowners policy, a $1 million umbrella policy could only cost you a few hundred dollars per year. Umbrella policies usually require policyholders to carry a deductible ranging from $250 to $1,000.

When considering an umbrella policy, compare the annual cost of an umbrella policy to the cost of increasing liability limits on your current policy. Umbrella policies are not necessary for everyone. However, if you have substantial assets to protect or regularly engage in activities that pose risk to others—such as a swimming pool or frequent outings on your boat—you should talk to your agent to determine if you need an umbrella policy or if your current liability coverage provides adequate protection.