Do I Really Need Umbrella Insurance?

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eye patch
eye patch

photo credits: http://flamesnation.ca

Before we answer this question, we need to demystify the idea that umbrella insurance is only for the ultra wealthy.

Umbrella insurance simply provides that extra layer of financial protection when your existing homeowners and car insurance have reached their limits. Freak accidents don’t discriminate on a person’s level of wealth; they can happen to anyone.

Let’s look at two past scenarios:

Scenario 1 – covering damages:

Jake owns a high value home in Greenville and loves to cruise around town and up to Paris Mountain State Park using his two luxury sports cars. He’s a smart guy and has the highest insurance policies possible for both his home and his cars-his prized possessions.

However, one autumn, a huge storm hit Greenville and damaged his home and floods one of his older luxury cars. He had been away on a business trip. His insurance limits have both been maxed out in trying to repair the damages, but he still had roughly $50,000 worth of items to repair. What did he do?

If Jake had an umbrella insurance policy, he would have been able to use the policy to cover the remaining $50,000, but since he didn’t have an umbrella policy, the remaining $50,000 had to come out of his pocket.

Scenario 2 – protecting your assets:

A group of bachelors were at the golf course, and Bob hit the golf ball and sliced it really hard going to the next hole, near another group of guys in the tee box. Bob properly yells “fore,” and instead of looking down, one of the men near the next hole looks up.

It happened all too quickly. The golf ball crushes his left eye socket and then later sues Bob for $3.5 million.

The man who hit the ball, Bob, had a million dollar umbrella policy, plus the $500,000 on his homeowners insurance. When his homeowners insurance policy was exhausted, his umbrella policy took care of another $1 million.

Even though the injured man sued for $3.5 million, the judge settled at 1.5 million, because the judge saw that Bob, the hitter, was doing everything he could, to adequately protect himself based on his assets.

If he didn’t have an umbrella, the judge could have gone after his other assets, to make up the $3.5 million.  This is the case where owning an umbrella insurance protects your assets.

What is umbrella insurance?

Umbrella insurance is a type of liability insurance that provides extra coverage above and beyond home and auto insurance. It gives you a higher limit of coverage and can also cover claims that fall outside of your home and auto insurance policies.  

In order to purchase an umbrella policy, you do have to have the highest limits of coverage possible for both your home and auto insurance. For example, you cannot pay the lowest premium for the lowest possible auto insurance coverage and then buy an umbrella policy to make up the difference.

How much umbrella coverage should I purchase and what is the cost?

Coverage for an umbrella policy usually costs around $150-$200 for a $1 million policy. The premium will increase if you purchase an umbrella policy for more than $1 million.

In order to decide how much umbrella insurance you should purchase, keep these three things in mind:

  1. The value of your assets – if you have a large amount of assets, purchase a higher limit of umbrella coverage.
  2. The risks you face – are you a commuter? Do you have any dangerous hobbies?
  3. Potential loss of future income – liability lawsuits often result in loss of both current and future income. While you may not have many assets now, if you’re on track for a high paying job a lawsuit can target  money that you haven’t earned yet.

Add protection with umbrella insurance

Jake should have considered purchasing an umbrella policy to cover his expenses to repair all the damages done to his house and car. Bob, the golf hitter who injured another’s man’s eye, on the other hand, was properly covered. While it’s a policy everyone hopes to never have to use, an umbrella policy can make or break your bank when an unexpected accident comes along.

Talk to your insurance agent (844-272-0525) to find the right umbrella policy for your budget and lifestyle.