Umbrella Insurance is critical to your insurance plan
If you were found negligent or liable for someone else’s bodily injury or death, would you have enough insurance to protect your assets?
Umbrella insurance is a stand-alone liability policy that provides an additional limit of liability over and above your underlying liability limits that are already on your homeowners and auto insurance policies.
Life can be unpredictable and as much as we plan for the best, sometimes the worst can happen. This is where umbrella insurance comes into play and provides you with additional coverage that goes above and beyond to protect your assets.
Umbrella Insurance example scenario
To get a better sense of what Umbrella Insurance is and how it would work in a real life situation, it helps to think about it in action.
Say you’re held liable for causing a car accident with multiple vehicles and someone or everyone involved decides to sue you. The total amount you are liable to pay is $850,000. However, the liability limits on your Auto policy are only $300,000.
In this case, your insurance would pay only $300,000 for the entire accident, and you would be responsible for the remaining $550,000 out of your own pocket! Even though you might not have $550,000, they will be able to absorb what they can, by garnishing your wages, liens on your assets, withdrawing from your retirement or life insurance policies. They will be able to continue collecting your debt until it’s paid and if something were to happen to you, debt could be passed onto your loved ones.
With an Umbrella policy, however, you could extend your liability limits beyond the maximum provided by your underlying policies. In this case, an Umbrella policy would provide liability limits above the $300,000 limit of your Auto policy, up to the limit you choose for your Umbrella policy (typically anywhere from $1 million up to $5 million in coverage).
In other words, you wouldn’t be left paying the remaining $550,000.
- your dog bites a neighbors child
- fire at your condo spreads to other units
- accident at your rental property
How much does Umbrella insurance cost?
One of the things that makes Umbrella insurance so appealing is that the cost is generally very low.
Coverage can start around $150 per year. The cost of your policy goes up based on the amount of vehicles, toys and property you own, but in general the cost is pennies on the dollar, and all the risk is on the insurance company.
Even if your premium was $300/yr, the insurance company is on the hook for at least $1,000,000. That is a tremendous value, and something that everyone should think about given our sue happy world we live in.
It only takes one accident to potentially bankrupt yourself
Keep in mind that most insurance carriers require that you have at least your auto insurance policy with them in order to qualify for their umbrella.
Stand alone umbrella policies are available also for special situations.