You already know that we live in a litigious society. That's why you need liability coverage on your home. Such a policy will provide a nice check in case someone slips and falls on your wet bathroom floor and sues you. As with auto insurance, most homeowners policies come with $100,000 to $300,000 of coverage. But unless you're worth less than that (including all your assets), you should buy more coverage in the form of umbrella liability policy.

Umbrella liability insurance is a relatively inexpensive way to make sure you have complete liability protection on all of your turf as well as your car. It may also cover you in other liability cases, such as if someone sues you for libel. And basic umbrella coverage may include all owner-occupied residences, up to four rental units, drivers under twenty-five, and small boats.

Typically, umbrella policies start to pay only after the liability protection under your homeowners or auto policy exhausts itself. To make the purchase most cost-effective, you'll want to increase the liability coverage on both your home and auto insurance to $300,000 before you buy the umbrella. According to the Insurance Information Institute, you should then be able to buy $1 million of umbrella coverage for $150 to $300. The next million will cost about $75, and $50 for each additional million worth of insurance.