DOES YOUR FAMILY NEED UMBRELLA INSURANCE?
In today’s highly litigious society you are at near-constant risk for costly lawsuits—even if you’ve done nothing wrong. This is especially true if you have substantial wealth, but even those with relatively few assets can find themselves in court facing a potentially devastating lawsuit.
If you are sued, your traditional homeowners or auto insurance will likely offer you some liability coverage, but those policies only cover you up to a certain dollar amount before they max out, and you can be held personally liable for anything beyond that limit. For this reason, you should consider adding an extra layer of protection by investing in personal liability umbrella insurance.
An Extra Level Of Protection Umbrella insurance offers a secondary level of protection against lawsuits above and beyond what’s covered by your homeowners, auto, watercraft, and other personal insurance policies. Umbrella policies can cover a wide array of potentially ruinous costs related to a lawsuit, such as medical bills, legal fees, lost wages, court costs, and other expenses. For example, say you cause a car accident in which multiple people are seriously injured. Their medical bills total $800,000, which exceeds the $250,000 in your auto insurance policy limits. This is where umbrella insurance kicks in. The umbrella policy will pay for the remaining $550,000, as well as your legal expenses if you lose the case.
But medical bills and legal expenses are only one potential expense you could face. In the above example, let’s say one of the injured parties is a highly paid executive who is unable to work for four months because of their injuries, so in addition to his or her medical bills, the person also sues you for lost wages totaling $80,000. With your auto insurance limits maxed out, you are now on the hook for $630,000, and unless you have umbrella coverage, your personal assets such as your home and/or retirement savings could be at risk to cover those costs.
Who Should Have Umbrella Insurance
Umbrella insurance is valuable for anyone who can afford it. Anyone can be sued at any time for anything, which means it’s a particularly good idea if you are engaging in any activity that could leave you liable for a judgment in excess of your policy limits.
If you are sued and a judgment is ordered against you for an amount that exceeds your insurance policy limits, the court can allow the plaintiff to go after your future earnings, potentially garnishing your wages for years. In this regard, umbrella insurance not only protects your current assets, but your future assets as well. Additionally, umbrella insurance is especially valuable if you fit into any of the following categories, which generally increases the likelihood of getting sued.
You have a swimming pool, hot tub, trampoline, playground set, or other potentially hazardous recreational equipment.
You have dogs, horses, cattle, or other large animals.
You employ household staff.
You frequently host large parties or other events in your home.
You are a well-known public figure.
How Much Coverage Should You Have
Most people will be adequately covered with a $1 million umbrella policy. If you earn more than $100,000 a year or have more than $1 million in assets, you may want to invest in additional coverage. A good rule of thumb is to buy an umbrella policy with coverage limits that are at least equal to your net worth. What’s more, as mentioned earlier, if you are involved in a particularly large lawsuit, your future income and assets could be at risk as well. So even if you have fairly limited income and assets now, you should consider your future earning potential when purchasing coverage. This is especially important if you plan to go into a highly paid career field, such as medicine, law, or financial management.
How Much Does Umbrella Insurance Cost
Umbrella insurance is fairly inexpensive, especially compared to other types of insurance and how much coverage it offers. Most people can buy a $1 million umbrella liability policy for between $150 and $300 per year, according to the Insurance Information Institute. An additional million in coverage will run you between $75 and $100, and then you are looking at roughly $50 for every million in coverage beyond that. Umbrella policies are generally inexpensive because they only go into effect after your underlying homeowners, auto, watercraft, or other policy is exhausted. Given this, most insurers require you to have at least $250,000 in liability on your auto policy and $300,000 on your homeowners before they’ll sell you a $1 million umbrella policy.
How To Purchase Umbrella Insurance
You can buy an umbrella policy from the same insurance company you use for your other home and business policies. In fact, some companies require you to purchase all of your policies from them in order to obtain umbrella coverage. If your current insurance company offers umbrella coverage, you may qualify for a discount for bundling all of your policies. Of course, you can also purchase a stand-alone umbrella policy, so shop around for the best rates.
Better Safe Than Sorry
No matter how careful and responsible you may be, accidents happen all the time, and no one is immune to the threat of a potentially devastating lawsuit. To make certain your family’s current and future wealth has the maximum level of protection, consult your broker to see if umbrella insurance is right for your particular situation. " ?"
This article is a service of Jeni Snider, Personal Family Lawyer®. I do not just draft documents; I ensure you make informed and empowered decisions about life and death for you and the people you love. That's why I offer a Life & Legacy Planning Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love.