When it Rains it Pours: Considering Umbrella Coverage

Umbreall in the rain. rain-275314_1280 Source: PixabayUmbrella liability coverage, like all insurance, is something you hope to never need. But when you do need it, it can be a life saver.  It isn’t as well known as other types of insurance such as home and auto insurance, but it can be just as important.

Our job as financial planners is to help clients build their wealth, and also to help them protect it.  Various types of insurance are the first step in protecting what you have spent your hard work building. Umbrella liability coverage is an important factor in this protection.

What is it?

Umbrella liability coverage provides insurance protection above your auto and home liability insurance. It kicks in if your family is sued or found liable for damages greater than the coverage on these policies.

What does it cover?

Typically, Umbrella liability coverage protects you if you are found responsible for damages such as

  • bodily injuries
  • personal injury (including libel, slander, defamation of character)
  • property damage
  • liability as a landlord
  • certain lawsuits.

Each umbrella policy is different. Be sure to review yours to understand what is covered and where you may have exposure.

Why do you need it?

It’s an unfortunate fact that lawsuits are common these days.  It’s common to hear of multi-million dollar judgments against large corporations. But more frequently we are hearing of sizable judgments against individuals. If you are found liable for damages, not only are your current assets and investments at risk, your future earnings could be as well.

For example, let’s say you are driving home from work and rear end someone. Depending on the extent of damages, your auto policy could cover the damage you are responsible for. But let’s assume that when you rear end this person you trigger a five car pile up. One of the injured is a high-paid executive of a large corporation. Your liability exposure could exceed the coverage you have on your auto policy. This is likely if the the injured need extensive medical care or recovery of lost wages.

Who needs it?

Umbrella insurance is important for anyone who

  • has a large balance of assets or net worth
  • has children (especially teenage drivers)
  • owns property
  • has animals (especially aggressive ones and certain types of dogs)
  • travels
  • has recreational equipment on their property (pool, trampoline, swing sets, athletic gyms, etc.)
  • has recreational vehicles (boats, ATVs, snowmobiles, etc.)
  • owns rental properties
  • is a board member
  • drives (especially with long commutes or travel during busy times)
  • hunts.

That’s just off the top of my head. Keep in mind that even if you don’t fit into one of these categories you can still be at risk of a lawsuit.

Where do you get it?

Umbrella coverage can be purchased as a stand-alone policy, but it is typically added as a rider on your auto or homeowner’s insurance policies. Your agent may also suggest (or the provider may require) that you increase the coverage on these policies to avoid a gap in coverage.

How much do you need?

Umbrella coverage can be purchased in multiples of $1 million and starts around $200/year.  The amount you need depends on your current assets and net worth and your personal situation. A discussion with your financial advisor and insurance agent will help you assess how much you need.

Are you unsure if an umbrella policy is right for you, or not sure how much coverage makes sense?  I specialize in creating comprehensive financial plans that address these questions for families in Allen, McKinney, Frisco and the surrounding areas. I’d love to help you.

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