An umbrella insurance policy, sometimes known as excess liability, is additional personal liability coverage that supplements auto and homeowner insurance liability coverage and protects you from a wide variety of risks. Umbrella policies have been historically purchased by wealthy individuals with substantial assets to protect, but anyone with assets and a decent income can benefit from the extra coverage.
Most people think of protecting assets like an investment portfolio or vacation home but never consider their income as an asset. The fact is that wage garnishment as a result of a liability claim is a growing trend so getting additional coverage is not just about protecting traditional assets. You have spent a lifetime building assets and growing your income to provide for your family and prepare for your retirement, the last thing you want is to get sued for all you are worth. Accidents do happen however and the more you are worth or earn, the greater the likelihood the injured person will go after you.
The right amount of umbrella coverage depends on your assets, your income, your profession and your aversion to risk. Umbrella insurance is typically sold in $1 million increments and costs on average between $150 to $300 a year for the first $1 million in coverage. The next million will typically cost about $75 annually and about $50 for every million after that.
Pros of Umbrella Insurance
Twenty years ago, the chance of you being in a catastrophic law suit would have been a rarity. However, in this litigious society that we live in today, getting sued at some point in your life is becoming more likely. In addition if someone decides to sue you for whatever reason (that is covered by your policy), an umbrella policy would not only pay the claim but pay for defense costs as well. Defense costs can be a very large number often times exceeding the actual settlement.
Cons of Umbrella Insurance
I’m not sure there is a downside other than cost, but for folks with assets to protect the costs amount to very little. However, don’t assume that all umbrella policies work the same way as there are major differences between policies. Be sure to understand what is covered and what isn’t. For example, some polices only cover liability claims that arise in the United States. If you happen to travel internationally and something happens outside of the U.S., you could have a serious problem. For your own peace of mind, consult a financial planner or independent insurance agent who are well versed in umbrella insurance who can ensure you have the coverage that you need.
To find out more reasons about why you should purchase and umbrella policy, listen to the discussion on the Financial Spotlight radio show.
What should you do?
Besides protecting your own assets, having an umbrella insurance policy can help the other person involved. In most cases, an accident that results in personal injury is devastating, not only to the person who got injured, but also to the person who caused the accident. Having additional coverage for this situation can help alleviate the costs associated with the injury, protect your assets for your family and also help you re-establish peace of mind.