Benefits of an Umbrella Insurance Policy
Imagine this: a neighbor’s child comes over to play with your kids in the backyard. They are having a great time when suddenly you hear screams. The neighbor’s child has fallen and is badly hurt. The neighbors are, of course, forgiving; until the medical bills start coming in. Those bills are quickly exceeding the limits on your homeowner’s insurance policy. Without an umbrella policy, you would likely be on the hook for the remainder of the bills.
There is a reason why many CPAs and financial experts recommend that individuals with assets have an umbrella insurance policy. The benefits of this type of policy include:
Asset Protection: The primary reason people purchase umbrella policies is to protect their assets. Typically, homeowner and auto insurance policies offer maximum liability limits of $500,000. Medical bills, legal costs and damages could easily exceed this limit if they are severe.Let’s say that a child nearly drowns in your swimming pool. According to statistics, the medical costs associated with treating near-drowning victims under the age of 14 can be staggering. For example, the costs could exceed $250,000 per year if long-term care is required. If the injury results in brain damage, the damages could exceed the $1 million mark.
If your homeowner’s insurance policy has a limit of $500,000, that could mean you would be liable for $500,000 or more to cover the remaining damages. Unless you have that kind of cash on hand, your assets (including your home) would likely be used to cover those costs.
An umbrella insurance policy would cover this gap, leaving your assets in your hands.
Umbrella policies also offer protection for:
- Defense costs if you are sued for damages to property or for personal injuries;
- Litigation from injury or property damage.
It is often recommended that homeowners have an umbrella policy of $1 million, even if they have less than $1 million in assets. There is a chance that a legal judgment could include current assets and future earnings, which would likely exceed the value of your assets. If you earn more than $100,000 per year or have more than $1 million in assets, you may need a policy with more than $1 million in coverage.
Peace of Mind: Ultimately, an umbrella policy will provide you with peace of mind. If someone is hurt on your property or you are involved in a serious car accident, you can rest assured that the incident will not cause you financial ruin. The stress and trauma of the incident will be trying enough. The last thing you want to worry about is money.
Hopefully, you will never need to use your coverage, but you will be glad to have it if the need arises. Accidents can happen at any time and without warning. An umbrella policy ensures that you are prepared for a worst-case scenario.
A Small Price to Pay: A typical umbrella insurance policy with a $1 million limit will generally cost you around $200 per year. Each additional $1 million added to the policy will typically add $100 to the cost of the policy. So, if you needed $4 million in coverage, you could expect to pay around $400 per year for it. That is a small price to pay for peace of mind and asset protection.
If you are considering an umbrella policy, there are several insurers to choose from. The best place to start your search is to speak with an independent insurance agent. Independent agents work with several of the top insurance carriers in your state, and because they are not captive to any particular carrier, they are able to shop freely and find the policy that best fits your needs and budget.