How far will your current coverage go to protect you?

Example. Say you're at fault in an auto accident that causes serious injuries to the driver and/or passenger(s) in the car you hit. Your auto insurance has liability limits of $100,000 per person and $300,000 per accident. (Which are pretty common limits, by the way, even for people with a significant amount of assets.)

How far do you think $100,000 will go, particularly if the person or persons involved suffer injuries that keep he/she/them from working for months, even years? The accident victim(s) could sue you for his/her/their medical bills, lost income, even pain and suffering. In this scenario, you could be on the hook for well over $100,000.

Guess what happens if, say, you are hit with a judgment in the case of $250,000 for one person involved in the accident? Your auto liability insurance will cover the first $100,000 - and you're stuck for the rest. And that doesn't even include the legal fees you have to pay to your attorney. In addition, in some cases you might have to pay all or part of the legal fees the other party or parties incur. Ouch.

Umbrella insurance is for these very rainy days. While it may seem unnecessary, it really isn't, particularly for people with homes and other significant assets to protect. Do you really want to hand over your house and/or gains in the stock market to someone you injure in an auto accident? It could happen. But it doesn't have to.