Many people may feel they have plenty of coverage for any situation between their homeowners and auto insurance policies, but this may not be the case. For example, let’s say you are nearing retirement and you’re suddenly in a car crash. Luckily, you’re OK, but the driver of the other car has some serious medical bills from the accident and you are deemed responsible. If your auto insurance doesn’t cover the costs, you are on the hook and your assets could be seized. Luckily, umbrella insurance policies were created for exactly this purpose. Umbrella policies kick in once you’ve passed the coverage limits on your underlying policies, protecting your assets from possible seizure.
An Extra Layer of Protection
Basically, an umbrella insurance policy is exactly what it sounds like. It protects you when a normal insurance policy cannot cover all of the damages. Going back to the car wreck example, let’s say that the other driver’s medical bills end up at $500,000, but your auto insurance policy only covers $250,000. In this scenario, you’re personally liable for the remaining $250,000! Even worse, if your personal assets don’t cover the cost of the settlement, your future earnings may be seized. However, a personal liability umbrella policy has a higher limit and wider range of protection against things like property damage and medical bills. Personal umbrella insurance policies typically cover a range from $1-5 million, so you would be protected from almost anything that could actually happen.
After hearing about umbrella insurance, you may be asking yourself, “Why doesn’t everyone have an umbrella policy?” The fact of the matter is, many people simply don’t know that this type of insurance exists. Those who have heard of umbrella insurance may have thought to themselves that this type of insurance must be fairly expensive, but this is not the case. In reality, Jack Hungelmann, author of Insurance for Dummies, and of Bankrate.com said, “An umbrella insurance policy is the absolute best buy in the insurance business.” The usual umbrella policy costs around $150-200 per year for the first $1 million in coverage, and costs about $100 more for every million on top of that. Really this is a very low price for the peace of mind that comes with protecting your assets.
What Exactly Does Umbrella Insurance Cover?
An umbrella insurance policy comes with a relatively broad span of protection. The types of damage covered include injuries and medical bills, property damage, and even legal fees. It can even cover other types of legal damages, such as libel or slander. With that being said, umbrella insurance is not the solution to every problem. It does not cover malpractice or damage that is intentionally caused to any person or their property. In addition, umbrella insurance is a form of personal liability insurance, which means that it only protects you from damage to others. If you are the one who winds up with a pile of injuries, umbrella insurance will not pay your bills.
Is Umbrella Insurance Right for Me?
At first glance, it may seem that only people with a lot of assets they want to protect should invest in an umbrella insurance policy. While this is true, it can also be a life-saver for those who are not worth quite as much. “Most of us are not wealthy…We can’t afford to rebuild this,” said Delia Fernandez, a financial planner based out of Los Alamitos, California. “Whether you’re approaching retirement or getting ready to send your kids to college, how could you rebuild what you’ve already done?” It is important to remember that your current assets are not the only thing at risk in a settlement. Your future earnings may also be at risk depending on the situation.
The guideline to decide if umbrella insurance is a good investment is if you have more assets than liability coverage from other insurance policies. This way, all of your assets are protected by some sort of coverage. Most people who buy umbrella insurance never expect to use it, and $1 million is more than enough coverage for most of us. At its core, umbrella insurance is about having the assurance that your assets will not be soaked up just because of a single unfortunate event. As with most types of insurance, it is better to have it and not need it, than to need it and not have it.
