Do I Need an Umbrella Insurance Policy
All your life, you have been striving for your piece of the American dream. You have worked hard, saved and invested wisely, and you have accumulated a healthy net worth. Your mortgage is almost paid off, and your retirement account is approaching seven figures. You are ideally positioned to enjoy your golden years. Then one day, you are involved in a car accident.
Thankfully, you only sustained minor injuries and minimal vehicle damage. But the same cannot be said for those in the other car. Three individuals in the other vehicle are injured, and two of them are hurt pretty badly. The accident was ruled 100% your fault; your attention just got focused on something for a few seconds too long, it can happen to anyone. Nevertheless, you are responsible for the injuries the passengers in the other vehicle sustained.
You are not too concerned, because you have always maintained $500,000 in liability coverage with your auto insurance. You figure that should be more than enough to cover the damages from the accident. But it turns out, you figured wrong.
Medical bills, lost earnings, and pain and suffering for the individuals who were injured adds up to $1.5 million. How are you going to come up with the remaining $1 million? Suddenly, you are facing the prospect of losing everything you have worked so hard for all these years.
Does this scenario sound far-fetched? Actually, events like these happen every day. Each year, hundreds of thousands of individuals are seriously injured, and well over 30,000 are killed in motor vehicle accidents in the U.S. If you are unfortunate enough to have caused one of these serious accidents, your entire financial future may be at risk. And this is what umbrella insurance is for.
What does an Umbrella Policy Cover?
Umbrella insurance provides extended protection above and beyond the liability limits of your auto, homeowners, motorcycle, and boat insurance policies. It provides an additional layer of protection for incidents like the scenario mentioned above. Coverage can be purchased in million-dollar increments, with most policies offering a maximum of five million dollars of coverage (although some policies can go higher).
Umbrella policies provide coverage for:
- Bodily Injuries: If you injure someone in an auto accident or someone gets injured on your property, an umbrella policy provides extended coverage. You are also covered for events that may not be covered by an auto or homeowner’s policy, such as if you are out away from your property walking your dog and your dog attacks someone.
- Property Damage: An umbrella policy provides property damage coverage beyond the limits of auto and homeowner policies, as well as coverage for damage that is not included in these and other policies. Using your dog as an example again, your dog is at your neighbor’s house and it knocks over some priceless antiques while chasing the neighbor’s cat. This type of event would only be covered by umbrella insurance.
- Other Types of Legal Damages: Umbrella insurance provides protection for other types of lawsuits you may face, such as being sued for libelous or slanderous remarks about someone else. This type of situation is more common in the age of social media. You are also protected for most other types of civil lawsuits.
- Legal Fees: Umbrella policies will pay for your legal defense in a covered lawsuit. We all know that hiring a good lawyer to provide a successful defense can be very costly, but with umbrella insurance, you do not have to worry about this expense.
There are some types of lawsuits that an umbrella policy will not cover you for. Most notable on this list includes:
- Malpractice/professional liability;
- Damage that is caused by a business or business-related activity;
- Workers’ compensation claims;
- Damage that results from intentional or malicious actions against another person or property.
Who Needs Umbrella Insurance?
Not everyone needs an umbrella policy. For example, if you do not own a home or car, you have no kids or pets, and you have limited assets, you can probably do without it. But if you own property (e.g., home, autos, boats, etc.) and you have kids and pets, you should definitely consider umbrella insurance. Without it, you are exposed to potentially catastrophic financial losses.
How Much does an Umbrella Policy Cost?
The best part about umbrella insurance is that it is very affordable. Prices of policies vary by provider and types of coverages that are offered, but you can usually purchase a million dollars in coverage for about $150 to $300 per year. To find the policy that provides maximum value and addresses all of your needs, the best place to start his to talk with a local independent insurance broker. Independent agents have the advantage of not being captive to any one particular insurance carrier. This allows them to shop freely among the top insurers in your state to find the right policy for your needs and budget.