It is prudent that we protect ourselves and our families from potential lawsuits should you face an unexpected claim against you. An umbrella policy is an easy and affordable way to weather a storm and safeguard your family and assets.
What is Umbrella Insurance?
Umbrella insurance is an extension of your personal liability insurance. It protects you and members of your household if they are sued and found at fault for personal injury or property damage to others, libel, or slander. It is carried in addition to your homeowners, auto, recreational vehicle, boat, or other types of insurance policies that carry personal liability coverage.
I know what you are thinking…. Why do I need additional coverage when my home and auto policy already covers personal liability? The answer lies in the coverage limits of those policies. For example, your teen driver is found at fault causing significant damage to an expensive vehicle ($50,000 in repairs) and injury to another family ($250,000 in medical expenses) plus the occupants won’t be able to work and decide to sue for lost wages ($100,000). You are now facing $400,000 in damages, but your auto insurance personal liability limit is only $250,000. Now your personal assets are at risk for legal judgment. An umbrella policy would step in and pay the difference between your auto policy and what you are responsible for, and in this example scenario, it would cover the $150,000 plus legal costs.
What does it cover?
There are many scenarios where an umbrella policy could step in to alleviate your risk if you were faced with a judgment against you. Your coverage typically includes the following areas:
- Bodily Injury – injury and funeral costs that were found to be caused by you or members of your household (including your pets) on or off your property.
- Injury to Reputation – non-business-related slander, libel, defamation of character, wrongful eviction, false arrest, and pain and suffering. This also includes work you perform for charitable organizations or serving on boards.
- Property Damages – coverage for property other than your own and also includes additional coverage for your rental properties and tenants.
- Court Costs – legal defense costs for attorneys and court fees
- International Coverage – you are covered with the same above protections if you are found negligent in a foreign incident.
Who should buy an Umbrella policy?
Buying an umbrella policy is not just for the wealthy anymore. Middle class earners with a house, couple of cars, and savings should consider protecting their assets. There’s a chance one costly lawsuit could strip you of all your hard-earned assets and you are less likely to be able to afford the financial hit.
Inexpensive peace of mind
According to the Insurance Information Institute1, the annual premium cost is $150-$300 for policies that start at $1 million. You can purchase policies in increments of $1 million for about $50-$75 more after the first $1 million. Determining how much coverage you need depends on a few factors such as net worth, profession, lifestyle, number of homes, cars, and recreational vehicles you will be covering. When you’re trying to decide on the appropriate amount of coverage, you should consider what assets are protected vs unprotected if there was a judgement against you. To be safe, you could opt for enough coverage to cover all your assets. But it’s always best to talk to your financial advisor in case there are other risks to consider.
We can’t predict the weather any more than we can predict the future. Having an umbrella policy in place will help protect your family from litigious financial storms.