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SOME INFORMATION ON UMBRELLA POLICIES

You are finally at a point in your life where you’ve gained some wealth and have some assets to your name.  You’ve worked hard to get here, now what do you do to ensure those assets are protected?

You’ve heard the horror stories – someone gets sued (maybe even a baseless lawsuit), goes to court and loses everything they have in a blink of an eye.  You don’t want to start over again, so what can you do to protect yourself and your money?

Liability Insurance

It all starts with liability coverage.  Liability insurance protects you and your family’s finances when you experience major adversity, such as a lawsuit against you (even if the suit is groundless). For example, if you crash your car into someone else’s, liability auto insurance pays for a legal defense and any legal judgments or settlements. Or if your child hits a ball out of your yard and it hits someone in the face causing injury, the personal liability coverage on your home policy may cover their medical expenses.

But home and auto policies have limits on how much liability coverage they can offer.  If you have notable assets you could lose in a lawsuit, you need higher levels of liability insurance.  That’s where an umbrella policy comes into play. An umbrella policy is designed to help prevent financial ruin due to damages for which you’re financially responsible.

How Does an Umbrella Insurance Policy Work?

An umbrella insurance policy helps protect your assets and your future in two crucial ways:

  • May provide coverage when your home, auto or watercraft policy liability limits have been exhausted.
  • May provide coverage for damages that are excluded by other liability policies. For instance, false arrest, libel and slander.

What Does an Umbrella Policy Cover?

A typical umbrella policy will cover the following areas:

Bodily Injury

Helps pay damages if you or one of your household family members is found liable for bodily injury toward another person.  The classic example is your dog getting loose and biting a neighbor.  But this also provides coverage if you cause a significant auto accident that ends up extinguishing your policy limits.  Another example is if your child hurts another child (whether intentional or not) and their family decides to sue you.

Legal Fees

Often legal fees will be covered whether the suit is justified or not.

Injury to Someone’s Reputation

With the rise of social media and online communication, opportunities to be held liable for slander, libel or defamation are a real risk.  Did you know a business can file a lawsuit against you just for writing a negative online review?

Property Damage

If you cause a bad auto accident that involves a few vehicles, the property damage totals for repairs can be astronomical and likely much higher than what your auto policy can accommodate.  Additionally, coverage can be afforded for rented equipment, for example if you crash a rented jet ski into a dock.

Rental Property

Umbrella insurance is a smart investment for landlords.  As a landlord, you are responsible for the health and safety of your tenants and their guests.  For instance, a tenant falls down the stairs of your rental and is injured- you can be liable for their injuries.  As a landlord, you are also susceptible to lawsuits you normally wouldn’t encounter- like a tenant suing you for wrongful entry or invasion of privacy.

What Isn’t Covered by an Umbrella Policy?

Generally, an umbrella policy will not cover:

  • Your injuries or damage to your own property
  • Criminal or intentional action causing damage to someone else
  • Liability you assumed under a contract

How Does the Umbrella Policy Work?

Your home, auto and watercraft polices will provide liability coverage up to a certain limit (usually a maximum of $500,000).  If you are involved in a covered claim, your underlying home, auto or watercraft policy will pay out until the limit is met.  Then an umbrella policy will kick in up to its limit.

Do I Need Umbrella Coverage?

The short answer is if you own a home, have a growing income, or are financially established or in the beginning phases of it you should seriously consider an umbrella policy.

If you have a net worth higher than $500,000, you absolutely need an umbrella policy.

Basically, the more assets you have, the more you have to lose. If someone suffers a serious injury on your property or you cause bodily injury in a car accident, how much do you think you could be sued for?  $500,000? $1 million?  More?

Even if you aren’t currently at or even close to a net worth of $500,000, that doesn’t mean you are safe from a lawsuit over $500,000. If you have an at-fault accident resulting in serious injury to the other party, especially if it results in them being permanently injured to the point of no longer being able to work, you can still have your wages garnished until the amount has been paid to them in full.

How Much Umbrella Coverage Do I Need?

Umbrella policies start at $1 million worth of protection.  The general rule of thumb is your umbrella policy should cover at a minimum your entire net worth.  If you are involved in a lawsuit, chances are that is exactly what the other party will try to take from you.

How Much Does Umbrella Insurance Coverage Cost?

Most likely, it is a lot cheaper than you think.  A $1 million policy is usually less than $20 a month!

Personal umbrella coverage ensures that you, your family, and your assets are protected in the event of most accidents – not just auto accidents. And for such a small cost this is the smartest way to replace risk with security and peace of mind.