In today’s home and auto insurance world, many people are looking for the cheapest and quickest option. Give me the lowest limits with the fewest options and get me through this. In the short run, this may seem like a good idea. But, if you are involved in a claim, and especially if you are found to be at fault or liable in a claim, this bare-bones method may come back to haunt you.
In addition to examining your limits of basic coverages and optional coverages within your home and auto policies, it may be wise to consider an umbrella policy. Umbrella insurance is liability insurance. Part of your homeowners policy and part of your auto insurance policy include liability coverage- coverage that will pay when you are found to be at fault. Often times, basic limits that you will find in these policies are much lower than what might be needed. Thus, an umbrella policy can help protect your assets in a case where a lawsuit is filed against you and your home/auto limits do not cover the amount you must pay.
As an example, let’s say that you are in a car accident and found to be at fault. It is determined that the total amount for which you are responsible is $450,000. However, your auto policy liability limit is $300,000. Additionally, there are legal fees totaling $50,000. After your auto insurer cuts a check for the first $300,000, where does the other $200,000 come from? Without an umbrella policy, the answer is you.
But, with an umbrella policy, that excess amount for which you are liable will be covered. In many cases, that would include the legal fees, too. An umbrella policy would protect your assets- your cars, house, savings, and retirement accounts- from being exposed to resolving the outstanding debt.
Further, the cost of a personal umbrella policy is usually just a couple hundred dollars annually per million of coverage.
If you don’t have an umbrella policy, now may be the time to consider purchasing one.