My wife and I are in the process of building and buying our first home. We are excited but overwhelmed with tasks that are not typical of our experience with apartment living… for example, did you realize that as a homeowner you should probably have a lawn mower to, you know, mow the lawn? Or that new construction homes typically do not come with a garage door opener? How are you supposed to get the garage door open without one? I’m not Lou Ferrigno.

In addition to propping open our garage door with a stick, the home-buying process has also wised us up to one very large consideration in particular: insurance. As drivers, we have always had car insurance (it’s the law). As apartment dwellers, we have always paid for renters’ insurance (it’s the policy of most landlords). But owning a home offers more flexibility when it comes to liability protection. If you buy a home without a mortgage, homeowners’ insurance is entirely and completely optional. You may need your head examined if you don’t have a policy, but we do live in America and we are all free to make our own choices. Along this same vein, umbrella coverage is even more optional and is the primary subject of our article today.

What is it?

As the name suggests, umbrella insurance policies are designed to provide broad coverage against a downpour that could result should anyone have an unfortunate accident while on your property or if you are at fault in an auto accident. For example, pretend you are in an at-fault automobile accident and the other driver requires $500,000 of medical care. In all likelihood, your auto policy maxes out at $300,000. How does the other $200,000 get paid? If you have umbrella coverage, your insurance company will foot the bill. If you don’t, it’s coming straight out of your bank account. Ouch. Considering that just once accident can take away all that you have worked for, it is the least expensive insurance protection you can buy.

Umbrella policies also cover accidents that occur on your property. If the plumber trips on a loose brick in your driveway and breaks his leg, guess who he’s suing (hint: it’s you). Umbrella insurance would cover this as well after your homeowners’ policy pays its portion and also can cover legal costs incurred by you or the insurance company if a claim goes to litigation.

Do you need it?

That depends on your own personal risk tolerance. Like most insurance policies, there’s a high probability you will never use it. That’s why insurance is relatively inexpensive; you pay a small amount monthly to protect you from an unlikely (but costly) event in the future.

Since umbrella policies layer on-top of your other insurance policies, coverage is very inexpensive with $1 million in coverage averaging around $200-$300 per year and increments of $1 million only marginally increasing that premium amount. If you opt to use the same insurance company for auto, home, and umbrella, you’re probably eligible for a “multi-lines discount.” It’s their way of saying thanks for all the money you send them every month.

We can’t tell you for certain whether you need an umbrella policy or not, but we can recommend that you at least consider your options. Even if you travel around with a lucky horseshoe and that pair of socks you haven’t washed in a decade, there’s still a chance something unfortunate could befall you. As one article put it, “one liability claim can easily wipe out the wealth of most middle-income earners.” It all depends on how much you have to lose.