Imagine losing your retirement funds, investments, savings and even perhaps your future earnings. That’s pretty much an insurance worst-case scenario, but it happens all the time to people who do not have umbrella insurance protection. For the average homeowner, umbrella insurance should be part of their insurance portfolio.
An umbrella policy provides an additional layer of insurance, typically $1 million or $2 million, above your auto insurance and your home insurance liability coverage.
Who can benefit from umbrella insurance?
- Anyone with assets to protect
- Everyone who drives a vehicle, including a car, Motorcycle, boat or ATV
- Everyone who owns or rents a home
The primary reason for carrying umbrella insurance is that you never know what you may be responsible for. Accidents happen, and when they do, you may be held legally responsible for resulting bodily injury and property damage as well as legal fees, all of which can quickly escalate to hundreds of thousands of dollars.
According to Trusted Choice, when choosing your coverage limits, consider three things…
- The risks you, your spouse and your children may face. Consider risks as a homeowner or renter, the risk of causing an accident during your work commute, and any potentially activities you or your family participate in that could put those around you at risk.
- The value of your assets. These include properties, possessions, stocks, bonds, savings and retirement funds. The more assets you have to protect, the higher the umbrella policy limit you should consider
- The potential loss of future income. Because liability lawsuits can result in loss of both current assets and future income, even those with few assets to protect may want to consider the long-term ramifications of a serious claim.
An umbrella policy is relatively inexpensive – with a $1 million policy starting at around $250 per year. For higher net worth individuals, larger policies are available.
Have kids?
If you have children, umbrella policies really become a must have. Not only are you exposed during those years that your children have friends in and out of your house, but then they start to drive! Unfortunately, the risk of a motor vehicle crash in drivers ages 16 to 19 is higher than any other age group. Teen drivers are three times more likely to be involved in a fatal crash than drivers over age 20. Sadly, it’s not just them that is at risk. They put their passengers and other drivers on the roads at risk as well.
Adequate liability insurance protects you from these financial consequences. Pain and suffering, lost wages, medical bills and property damage are some of the items you may be sued for that are covered by umbrella liability insurance.
Scenario 1: “A $1.2 million settlement was reached when an underinsured driver hit a policeman who was completing paperwork at a traffic stop. The driver had to pay legal fees for his defense as well as the settlement.” – Dailyfinance.com
Scenario 2: “A family was hosting a dinner party and gave a few friends a tour of their home before dinner. One of the guests tripped and fell down some stairs located in an unexpected area during the tour, receiving severe injuries. The guest sued the hosts for $500,000, which is $200,000 more than what their homeowners’ policy will cover.” – ABI Plans Consultants
Scenario 3: “A youthful driver stopped at a stop sign to wait for a friend to catch up. The driver put the car into reverse to back up to meet the friend, when the car ran into a jogger. The jogger received a massive head injury, and the total claim was $1,000,000 over the parent’s primary insurance policy.” – ABI Plans Consultants
Scenario 4: Boat Incident — A family was taking a ride in their speedboat, taking care to avoid other boats on the water. However, they didn’t see two individuals floating in a tube near one of the boats. The boat hit one of the individuals on the tube, causing life-threatening injuries. The claim cost was $2,000,000 over the boater’s primary coverage. – ABI Plans Consultants