Umbrella Insurance

Why Umbrella Insurance Is So Important

I have often recommended umbrella insurance coverage on this site.

Umbrella insurance is a special liability insurance policy that covers you when your homeowners, renters, motorcycle or boat insurance runs out. It provides between $1 and $5 million dollars of additional coverage.

Additionally it covers non-business activities that are likely excluded by your normal policy – like liable, slander and maybe even pollution caused, for example, by a leaking heating oil tank. However, that coverage will not become active until the deductible is met and you have the problem of paying the legal bills, at least until then.

Umbrella policies are designed to kick in when your primary coverage is exhausted. Your primary coverage is the liability limits of the underlying policy, be it homeowners, auto, etc.

There are many good reasons to have umbrella coverage. One is that you can often save money on your primary policy by setting the limits at $100,000 per event. This is cheaper than $100/300,000 or $300/500,000 coverage which anyone with a job and a modicum of assets must have - at least if you want to avoid losing all and having to go bankrupt.

The umbrella policy would be bought with a $100,000 deductible. It will then provide coverage to the policy limits, usually $1 to $5 million dollars.

This might seem like a awful lot of money and that you could never do anything that would make you cause that much damage.

But remember trial lawyers have run amuck and judges and juries in too many states let they play their games. All you have to do is get the sun in your eyes when you’re driving across an intersection, causing you to broadside a car and cripple the passenger.

Or your dog can kill your neighbor’s child. Or someone could fall off your boat and drown after you had served them alcoholic beverages.

You teenage son could throw a party while you are away and serve booze to underage children. If one of them happens to get killed or mangled in a car crash, guess who’s responsible.

The point is that it is easy for a moment of inattention to cause grievous injuries. And the injuries don’t even have to be that bad for a million dollar verdict to be returned – witness the lady who spilled hot coffee in her lap and collected over $3 million dollars.

If you have no assets to protect, in other words if you are “judgment proof”, you don’t have to worry about this. However, if you have a good paying job and don’t want to see your wages garnished, if you have a nice home and car you’d like to keep or if you want to protect your savings and investments, the few hundred dollars a year you pay for this coverage can be well worth it.

If you buy all your coverage from one insurance company, it can usually offer you a discount on the policies you buy and wrap the whole package together seamlessly so you don’t have to worry about notifying other carriers if something bad happens.

Make sure you are aware of all the policy exclusions. If something is excluded that you might need coverage for, see if you can get a rider to the policy to provide you with the protection you need.

Insurance is protection against the unexpected. An umbrella policy is an excellent way to protect yourself, while usually saving you money on your insurance premiums as well.

Insurance

Life Insurance

Health Insurance

Homeowners Insurance

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Long Term Disability Insurance

Also see:

The Reservation of Rights Letter
What to do if you receive a reservation of rights letter from your insurance company.

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