3 reasons you need an umbrella insurance policy
Protecting your family is most people’s top priority. It’s why we buy insurance in the first place. But what happens when the insurance coverage you have isn’t enough?
First of all, let’s recap what insurance is (or is supposed to be). Insurance is a means to transfer the risk of a large loss to a large pool of participants. The odds say that you won’t get in a car wreck and your house won’t burn down. But if you’re the unlucky minority and it happens to you the financial losses could be disastrous.
So you insure your car and you insure your home “just in case” something bad happens. But your car and homeowners insurance have limits, and once those limits are reached you may have to dig a bit deeper to cover the financial consequences of being “unlucky”. That’s were a personal umbrella policy kicks in. It covers expenses over and above what your normal homeowners and auto insurance will cover.
#1 Car accidents can be expensive!
Let’s use a practical example to help better explain what an umbrella policy can do for you. Let’s say you’re in a car accident and it’s your fault and the other driver is hurt. Your car insurance will probably cover the other driver’s expenses up to $250,000 (or whatever limit you selected), but in this case they’re severely hurt, and the damages are $750,000.
The other driver could sue you, putting your personal finances at stake up to $500,000 if he wins. If you had a personal umbrella policy, it would kick in and cover the additional $500,000 over and above your $250,000 limit from your car insurance.
This could protect your savings, your investments, and even the equity in your home! As a side note, if you haven’t researched the homesteading laws in your home state you need to now. A homestead can protect most if not all of the equity in your home from frivolous lawsuits.
#2 Ice is slippery
Let’s say it’s the middle of winter and your sprinklers covered your sidewalk with water. Your innocent sprinklers became a nice slippery blanket of ice. Your neighbor doesn’t notice it on their morning dog walk – slips, falls, breaks a hip, and can’t work for 6 months.
Unfortunately your neighbor is a heart surgeon. He has substantial loss of income plus medical expenses to the tune of 1 million dollars. Your homeowners insurance probably only covers $500,000 of personal liability, so you’re out of luck on the other $500,000.
He’s going to sue you and take everything you own that’s not nailed down. If you had a personal umbrella policy, it would pick up the additional $500,000 over and above your homeowners limits.
#3 We all love our pets
We have two labradoodles. They’re amazing dogs, so loving and friendly. The little one however can get a bit “worked up”.
She’s quite the athletic dog, in fact she should be doing dog agility competitions. She can leap straight up and grab a chip held higher than my head (about six feet).
One day recently she jumped – literally leaped over – our 5 foot wall into our neighbors backyard. She didn’t know it, but our neighbors door was open and he was eating dinner. She ran straight into his house.
While he vigorously chased her out without major incidence, it could easily have gone sideways. If she had decided to bite him or anyone in his house we would be liable. Our homeowners insurance would only cover $500,000 of damages.
Should he decide to sue me for physical, mental, and emotional damages to the tune of 2 million, my business, my savings, my home equity may all be on the line.
Fortunately I have an umbrella insurance policy. Dog bites are covered under my policy so that additional coverage would help protect me from losses my homeowners policy did not.
How does a personal umbrella policy work?
Personal umbrella policies are typically available from 1mm to 5mm. Some insurers provide umbrella policies which cover attorney’s fees and even lost wages for you over and above the liability costs you may incur.
Is it a good idea to have a personal umbrella policy? I think so. It’s an additional backstop in the event something bad happens, and after all – isn’t that why we buy insurance in the first place?
We buy life insurance to protect our families, car insurance to protect our vehicles, homeowners insurance to protect our homes. In today’s highly litigious society the basic coverage’s offered may very well not be enough to cover a major incident. An umbrella insurance policy is a last line of defense to help protect you and your financial future.