Your home and auto policies already offer some form of liability coverage in the event you’re sued for bodily injury or property damage.
Most homeowner’s policies offer at least $100,000 in liability insurance, according to the Insurance Information Institute. Auto policies generally offer up to $250,000 for bodily injury per person, $500,000 per accident and $100,000 for property damage, according to NerdWallet.
To cover claims in excess of what home and auto policies provide, insurers sell excess liability coverage (also known as an umbrella policy) in increments of $1 million. You can purchase $1 million of coverage for $150 to $300 per year, according to the institute.
If you’re sued and you don’t have excess liability insurance, you’ll be responsible for any dollar amounts over what your home and car policies will pay.
“Your basic car and homeowners’ coverage is just a couple of hundred thousand and nobody will sue you for just that — they’ll sue you for way more,” said David Mendels, director of financial planning at Creative Financial Concepts in New York.
He knows this personally: Mendels once left his car to be serviced at an auto mechanic’s shop. An employee at the shop hit a pedestrian with his car while backing it out of the garage.
The pedestrian sued Mendels for more than $3 million, but wound up getting only $20,000 from his insurer in a settlement.