Unless you have been in the insurance industry or had an insurance agent or even a financial advisor recommend one, you probably think umbrellas are the things you use when it is raining outside. While this correct, in insurance they can help protect you from more than just a rainy afternoon.
What is a Personal Umbrella Policy?
In the insurance world, a personal umbrella is an extra layer of personal liability protection. Without a too in-depth insurance lesson that will leave you falling asleep in your chair, here is a quick breakdown. Personal liability is the coverage on your home or auto policy that protects you financially and covers third party injuries. An umbrella policy is an additional liability limit that kicks in once your primary limits are exhausted. For additional questions, please feel free to contact us.
How Does an Umbrella Policy Work?
On a homeowner’s policy, it covers you if someone was on your property and fell down your stairs. This bucket of money would cover their medical expenses and so on. Now let’s say you have a pool, and were hosting a party. During this party, your neighbors’ son fell into the pool, drown and had to be care flighted to the hospital. Your underlying liability coverages of $100,000, $300,000 or even $500,000 would not be enough to cover these expenses, and you would have to make up the difference out of pocket, possibly in a lawsuit.
However, if you had a one million dollar personal umbrella, once you exceed those underlying limits the umbrella would kick in, covering the expenses you may be liable for up to listed policy limit on the umbrella policy declarations page.
The umbrella policy would work the same if you were in a car accident. Most auto limits you see are in increments like $50,000/$100,000/$50,000. The first number is the amount of liability per person per accident, the second is the limit of liability paid total per accident, and the last number is the amount paid towards property damage. Let’s say you are driving down the highway, and an unfortunate sneezing attack starts causing you to cross two lanes into oncoming traffic, resulting in a multi-car collision, if you were carrying the above limits, it probably would not be enough to cover everyone that claimed damages. You may be financially responsible for the remaining balances and most likely find yourself on the wrong end of a lawsuit. However, if you purchased an umbrella policy, you would have another stream of money to fish from to cover those additional injuries.
What about the Cost?
Now that you have examples of what an umbrella policy can do, I am sure you are wondering what the catch is. There aren’t many caveats to the umbrella policy. Claim and driving records are factors but most of the requirements to carry an umbrella include an underlying home policy and auto insurance with adequate limits. The limits necessary depend on the company that the umbrella is written through. You might think that a million dollars of coverage would be an outrageous premium, but it is not. The cost is relatively inexpensive; some are only about $380 a year. That is such a small amount to pay for a huge piece of mind. Some companies may package your home, auto, and umbrella together.
How Much Umbrella Insurance Do I Need?
When determining your coverage limits, consider three things:
- The hazards you may face. Examine the risks as a homeowner or renter, the chance of causing an accident during your daily work commute, and any other potentially dangerous activities that could put those around you at risk. Maybe you are an avid boater, causing a boating accident would be something covered under the umbrella policy as well.
- The value of all of your stuff. These assets include properties, possessions, stocks, bonds, savings and retirement funds. The more you have to protect, the higher the umbrella policy limit you should consider.
- Lastly, are you willing to risk future income? Liability lawsuits often result in the loss of both current assets and even future income. Those with few assets now may want to consider the long-term implications of a severe claim.
When you evaluate your future income, consider your earning potential. You do not have many assets now, but you are on track for a high-paying career, you could be part of a lawsuit that targets future earnings.
Speak with one our licensed insurance agents today to determine any specific risk factors you may have. To learn more about how to protect your current and future assets contact us today.