If you have an overall positive net worth or have a high net worth, you need to consider obtaining a liability umbrella insurance policy. Why? Medical bills and damage to property can go into the hundreds of thousands, if not millions of dollars, in the event of an accident. Unless you are wealthy enough to self-insure, then an umbrella policy is your best bet.
Why get an Umbrella Policy
As I allude to earlier, if you are unlucky enough to have an accident either driving a car or in your home, chances are you may be sued. And if you are, then the award for damages can be in the hundreds of thousands if not millions depending on the severity of the injuries or damage. If you have a standard auto insurance policy, you most likely have either $100,000 or $300,000 in liability insurance. That means you will be responsible for anything over those amounts. And as I stated, medical alone can run high into the six-figure mark depending on the seriousness of the injuries.
These policies are generally used in conjunction with your homeowners, renters, or automobile insurance liability limits. Then in the event damages go beyond those limits, you will be covered up to $1 million if you had purchased a standard umbrella policy. Otherwise, you will be left owing to any difference above your insurance limits. If you need to purchase this insurance, you will generally get it in conjunction with existing policy, as they are not common as standalone policies.
How they Work
If you carry an automobile insurance policy that pays the standard $100,000 in the event of damages but could have gotten the $300,000 in coverage, it does make a difference. If you are sued for $900,000, and you did not have an umbrella policy in place, you would be left owing $800,000 or $600,000 depending on your auto insurance. But if you had an umbrella policy for $1 million, your auto policy would have paid the amount of coverage it had written into it at either $100,000 or $300,000. My insurance company required me to up my auto liability to $500,000, so it will vary from provider to provider. But in any event, had you been sued for $900,000 with an umbrella policy in place, you would not owe anything as it would provide the $1 million in protection in addition to the amount in the homeowners, renters, or automobile policy.
How much they cost
As a rule, a $1 million umbrella policy will cost you about $150 to $300 in annual premiums depending on your risk profile and any multi-policy discounts you may be entitled to. The policy I have costs about $270 for $1 million in coverage for our residence, two vehicles, and for my wife and myself. All in all, it is not a bad use of money when you consider how much lawsuits can be awarded for these days. And if you were to increase your policy to $2 million, it should not cost you more than about $100 to $150 in additional premiums. And most insurance companies will write an umbrella policy up to $5 million for high-net-worth policyholders. Now, this premium will be in addition to the premium you pay for your other policies, such as homeowners or automobile insurance.
But having that extra peace of mind that in the event something does happen and you are left liable for the damages, you will sleep better knowing you have the extra protection that a few hundred dollars can provide. Like any insurance, an umbrella liability policy is there for the management of risks, and in this case, the risks associated with you are the loss of your hard-earned assets.
As a Registered Financial Consultant, I highly recommend that all my clients be adequately insured. From health to life, long-term care if needed, and especially this low-cost liability insurance. If you think you are underinsured, contact your agent or a Registered Financial Consultant and ask for a review of your policies to see where you stand and if you need to strengthen areas of weakness.
If you have any questions or need any assistance, please do not hesitate to contact me directly. And to join my email newsletter, please fill out the form below.
