Do you own a home? Do you have a long commute? Are you a dog owner? If you answered yes to any of these questions, an umbrella insurance policy is worth looking into. As you probably know, we don’t sell insurance here at Independence Advisors. However, risk management is a key part of any comprehensive financial plan, and properly insuring yourself against catastrophic loss is a major consideration.
Umbrella insurance, also known as excess liability insurance, is a broad form of liability coverage that protects you against large losses. This type of personal insurance serves essentially as a protective “umbrella” over your other insurance policies. This means it provides excess coverage over your homeowners and auto policies. There are 3 main reasons that you should consider an umbrella policy:
For better or worse, a lot of people get sued in the United States each year. While the possibility of facing a personal lawsuit seems remote, it is becoming increasingly common and can be financially catastrophic if it happens to you. Let’s say you get into a car accident and the mishap is your fault. “Well that’s what I have auto insurance for,” you say? True, but your auto insurance may cover only $300,000 of medical expenses per accident. What happens if you get sued for $1 million? That leaves a $700,000 shortfall if you are found to be liable. This is how umbrella insurance can benefit you. In this same example, if you owned $1 million in excess liability coverage, your auto insurance would pick up the first $300,000 and the umbrella policy would pick up the remainder.
So you might be asking yourself, “Umbrella insurance sounds great, but how much does it cost”? This brings us to our second benefit.
2. It’s cheap
Umbrella insurance can be extremely economical. For about $1 million worth of coverage, you can expect to pay between $150 and $300 per year. Given how affordable umbrella coverage is, the cost/benefit ratio is typically in your favor.
Determining the necessary amount of umbrella coverage you need is not as straightforward as it is for say, life insurance. However, unforeseen things can and will happen; it’s just a matter of when and to what degree. If you need some extra motivation, consider this list of real life umbrella insurance claims.
Most umbrella policies provide roughly $1 million to $5 million of additional coverage. And, if you are sued, legal fees are typically covered on top of the policy face amount.
3. Works in conjunction with your current insurance
As mentioned above, umbrella insurance provides extra security above and beyond your current insurance limits. So, what is the baseline of coverage you need to have? Your baseline coverage typically needs to be at least:
- Auto insurance bodily injury coverage of $250,000 per person/$500,000 per accident
- Auto insurance property damage coverage of $100,000 per accident
- Homeowners insurance personal liability coverage of $500,000
Note: These amounts above can be different based on individual insurance company requirements. If you are considering an umbrella policy and your current limits are greater than above, make sure you do not have an “overlap” between where your current policy limits end and where the umbrella policy limits begin. Ensuring that there are no overlaps or gaps in coverage will get you the most bang for your buck.
If you are considering an umbrella policy and would like to discuss further, please don’t hesitate to reach out.