Have you ever wondered if you might need an umbrella policy? What is an umbrella policy designed to protect? What factors should I consider before buying one? The answers to these questions and more are waiting for you inside this article.
As a financial adviser, I often review client insurances for adequacy, cost effectiveness and proper type. One of the most commonly overlooked protections is a personal liability policy or an umbrella. Many people are not quite sure what it is or if they need one.
An Umbrella or personal liability policy is usually an all risk, all peril policy with coverage limits that start at $1,000,000. There are some very specific reasons that you might want to consider purchasing an umbrella and there are also some adjustments that you will want to make to your homeowners and auto insurance if you do.
Reasons To Purchase An Umbrella:
1. Children Driving: One of the simplest reasons to purchase a liability umbrella is if you have young children that are learning to drive or are under age 25. This age drivers are the highest risk drivers for a reason. They are inexperienced, easily distracted (friends, cell phones, texting, etc.) and statistically are involved in more accidents than any other age group. An umbrella policy will cover them all and protect you from losing everything if one of your children happens to cause a serious accident.
2. Assets To Protect: Most homeowner and auto policies have a maximum liability coverage of $500,000. But if you have assets in excess of this amount, you are exposed to a potentially higher liability problem if someone decides to sue you. Maybe you were involved in a car accident or someone slipped on your property, etc. If they sue you for more than the $500,000 and win, it will come out of your pocket or you may have to sell some assets. If your net worth is over this limit, consider purchasing an umbrella policy for the appropriate amount.
3. High Profile Income or Career: Another reason to consider is if you are in a high-profile profession where incomes are typically high. Someone may think that you are wealthier than you are just because of your title or profession and may be more inclined to sue for a larger amount.
4. Litigious Society: Today we live in an extremely litigious society. Lawyers are suing for larger and larger amounts and if you bear any liability, they are winning. Even if you are not liable, the legal defense fees are expensive. Some say that having a million dollar umbrella causes attorney's to sue for more. This may be true, but if you need the protection, it is better to buy the policy and hope you never use it, than it is to need it and not have it.
5. Cost Savings Adjustments: If you decide to purchase an umbrella, you can reduce your overall cost by doing the following. First reduce your homeowners and auto liability limits to their minimum allowed. This may be $100,000 instead of $500,000 and this will save you some premium dollars to offset the cost of the new policy. Next consider increasing your deductible amounts from $100 to $500 or $1,000. This will also reduce your premiums, but remember that if you make a claim, your new higher deductible will cost more.
Summary: For many families today, young drivers, increasing net worth and higher incomes make personal liability protection a necessity rather than an option. The additional cost is not outrageous, usually $300 to $800 annually and if you make some adjustments to other policies, you can possibly cut your extra out-of-pocket cost in half. Make sure that when you look at your overall financial situation and your risk management strategies, you carefully consider this one.
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