I'm assuming you and others on this thread know and understand the basics of an Umbrella policy so I won't address those fundamentals.
There are two primary reasons to carry insurance (we'll get to the Umbrella in a moment):
- Hard economic times promotes / encourages a highly litigious society.
- You cannot pick the dynamics of an accident - fault, property damages, injuries.
There has been a long standing thought process that monies from an insurance settlement are "free money". Injuries in an accident that may have been considered minor five years ago are suddenly major with pain and suffering. People are more prone to sue when money is tight.
If you're involved in an accident for which you're legally and financial responsible, you want to shift that financial responsibility to your insurance company as much as possible. Let your insurance company provide you legal assistance. Let your insurance company work out all the settlement issues. This only works if you carry high enough limits on your insurance policies. You want that veil of protection between you and financial disaster.
One thing I hate to hear is "you can't take blood out of a turnip" as a reason for people to carry only the minimum coverages required by their state laws. This attitude is the "sue me and you won't get squat" because they feel since they're carrying the minimum limits they're absolved of any responsibility. The prevailing attitude is "if you hit me I'll sue you for everything you've got" and "if I hit you, too bad".
As I mentioned earlier, you cannot choose the dynamics of an accident. You are limited on the coverage maximums you can have on your car and homeowner's policies. While the states mandate minimum liability insurance, the insurance companies control how high you can go on the underlying policies. You may have high enough coverages on your auto policy for the majority of accidents; however, what about the catastrophic accident where several people were killed or maimed and the 18 wheeler carrying high value electronics overturned and
you were at fault?
Remember that "veil of protection" I wrote about earlier? It goes both ways. You want your insurance company to protect you and your financial future in case you were at fault. That only happens if you have the right coverages and
high enough limits on your auto policy. That's why you need an Umbrella policy. It is coverage above your auto and homeowner policies.
An Umbrella also protects you. If the other party is at fault and you have catastrophic injuries above your medical payments and Personal Injury Protection (we're leaving medical health insurance out of this because not everyone has it), your Umbrella policy also provides you with a "veil of protection". It really is a two-way street.
In Texas, one out of every five vehicles is uninsured. A large portion of the remaining "insured" vehicles only carry the minimum coverage limits required by the state. I'll put my trust in USAA to handle all pieces of an accident, regardless of fault.
I've taken a circuitious route to answer your question because I wanted to give some basis behind my answer. The reason you want to have an Umbrella policy is simple. To protect your financial security. The cost is reasonable. The Umbrella also provides a few extra coverages not available under the auto or homeowner's policies.
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