Imagine, you are enjoying a wonderful Saturday morning outside. You are out walking Fido, who by the way is the friendliest dog, and you see your neighbor outside. You stop to say hi and he is trying to pet Fido. Out of nowhere, Fido bites him! You apologize but your neighbor is saying they are going to sue you for the damages. No problem, your homeowners should cover this issue, right? Until you talk to your agent and learn that your coverage isn’t enough to cover the total cost. The cost is too high and you have no idea how you are going to cover it. What a mess this is.
Now step back, before this happens, there is a way to protect yourself from this. Umbrella Insurance. No one is perfect and neither is your insurance policy. However, Umbrella Insurance is there for the things your policy may not cover or doesn’t cover fully. What is Umbrella Insurance? Umbrella insurance protects you from liability issues that go beyond the liability limits of your standard insurance policies such as your homeowners and car insurance.
So what exactly does Umbrella Insurance cover? Umbrella Insurance can cover the difference between what your standard insurance policies cover and what you would still owe after that. It can also cover those things that your standard insurance policies may not.
Umbrella Insurance could help to pay for others injury treatment and funeral costs, others property damage, lawsuits involving slander and libel, your legal defense costs, and injuries or property damage suffered by a tenant if you are a landlord. It typically does not cover your own injuries, damage to your personal belongings, others personal injuries or property damage that your business is liable for, intentional or criminal acts, and damage that you cause while operating certain recreational vehicles.
Who needs Umbrella Insurance? That decision is really based on what you have to lose and how much risk you are taking. For the what do you have to lose the portion of that decision, it is best to determine your net worth and future earnings.
Net Worth = Assets (what you own) – Liabilities (what you owe)
If your net worth is less than your current liability coverages, you may not need an Umbrella Insurance Policy. However, if it is more, your Umbrella Insurance should exceed your net worth to fully protect you. In terms of future earnings, you just want to be sure to protect yourself both now and in the future. In the event of a claim that either exceeds or does not qualify for your standard insurance policies, the payment will not only hit your current accounts but also future earnings. For the next portion of the decision, we will evaluate your risk. Risk factors typically include the following:
If you fall into these risk factors, you probably should look into Umbrella Insurance. These risk factors all increase your chances of having claims that could exceed or not qualify under a standard insurance policy. However, the argument could be made that everyone could need Umbrella Insurance, you never know what will happen.
Okay, so now we know what Umbrella Insurance is, what it covers, and who needs it. But let’s be real, many insurance decisions come down to cost. How much does Umbrella Insurance cost? Umbrella Insurance Policies are typically sold with a minimum of $1 million in coverage. That may seem excessive to most and you are probably wondering why you would need that much. However, picture this, you crash into someone and there is extensive personal injury and property damage on their end and now you are now at risk of being liable for their medical expenses, damage repair, income loss, and more. All of that can add up very quickly. So how much does that coverage cost you? Here is an estimate from www.insurance.com:
$1 million – $150 to $300 per year
$2 million – $225 to $375 per year
$3 million – $275 to $425 per year
$4 million – $325 to $475 per year
$5 million – $375 to $525 per year
So that per year price point is not bad at all for the coverage, right? Still too high?Do not fear. Depending on your insurance company, there may be discounts and ways to save. Some households try to cut costs by shopping the market or bundling their insurance. Depending on your company, these things may save you money. Your company may also offer discounts for those with good credit or those who have had no claims. A quick discussion with your agent could lead to savings to help with the cost of protection.
So let’s recap: An umbrella policy is simply another layer of protection over and above your primary liability. Lawsuits arising from personal liability exposures can reach catastrophic levels. A liability judgment might exceed the liability limits of homeowners, personal auto, recreational vehicle or watercraft policy. Once the liability limits under those policies are exhausted, the insured might be forced to pay a substantial amount from personal assets. The personal umbrella policy provides liability protection to insureds for amounts over and above the liability limits on homeowners, personal auto, recreational vehicle or watercraft policies. Faced with the increasing frequency and severity of liability lawsuits, most individuals and families need this protection. It is also important to note that Umbrella policies are not all the same, so it is recommended you check with your agent to understand the type of coverage your umbrella policy can and can not provide.