Umbrella Insurance, Is It Right For You?

The turbulence of the financial markets and state of the economy in recent years have caused smart investors to become more focused on transparency in their investment selections, on understanding the risk in their portfolios, and on ensuring that their asset allocation matches up with their long-term objectives for their wealth.

All too few however are introduced to a simple, relatively inexpensive strategy for insuring their assets and future income — umbrella insurance.

In an increasingly litigious society, far too many people with significant assets roll the dice when it comes to protecting their assets, and their lifestyle, from frivolous lawsuits.

Imagine a friend, neighbor or total stranger getting injured on your property (do you own a swimming pool?) and suing you for damages. Or having your teenager involved in a car accident with someone who sues you for damages that exceed the coverages on your auto insurance policy. It can happen — and all too often does.

The typical auto insurance policy offers liability limits of $100,000 per person and $300,000 per accident. What if the injured party decides to sue for damages, injuries, time away from work, and the total damage award is $400,000? And what if you have to pay legal fees? Your insurance would cover the first $100,000, and you would have to pay the rest out of pocket.

And in the worst case scenario in which you don’t have the cash, a liquidation of your assets, including your home, may be required, as well as garnishment of your future wages. Why subject yourself to these risks when affordable protection is accessible to all?

So what exactly is umbrella insurance coverage? As the name implies, it is coverage that sits over your automobile and homeowner’s coverage.

Umbrella insurance kicks in when auto and homeowner’s policy limits are reached. For example, a $1 million umbrella insurance policy would provide $1 million over and above the limits of the auto and homeowner’s policy. And the cost? A $1 million umbrella policy can cost as little as $200, or less in some cases, and can be purchased through your automobile or homeowner’s insurance agent.
And if you don’t have those coverages combined, there is potential additional cost savings in doing so. The low cost of umbrella insurance reflects the fact that this coverage is for catastrophic situations, which also causes many to believe “it can never happen to me,” and forego the coverage. A potentially big — and costly — mistake.

How much coverage do you need? This question is best answered with the help of your financial advisor, but a good rule of thumb is that it should cover your net worth, or a good portion thereof, depending on how much liquidity you have and how much you are willing to put at risk.

No financial strategy is appropriate for everyone.  Feel free to contact us to discuss your particular situation.