There is a common misconception that umbrella insurance is only for the wealthy, but that’s not the case. If you have the ability to earn a livelihood, you can benefit from an umbrella liability policy. This is because if you do lose a lawsuit, you can be held personally liable, not only on your current assets, but your future earnings as well. Wages can be garnished as part of a legal settlement.
An umbrella policy will protect you from that risk. It adds liability protection over and above your auto and homeowner’s insurance up to a limit that you decide. Most policies will cover you up to $1 million to $2 million, but you can always increase this limit if you can afford paying additional premium. Umbrella policies will require that you maintain liability limits on your homeowners and auto insurance policy. Usually insurers require you to carry $300,000 to $500,000 liability coverage on your car and house.
Why get an Umbrella Policy?
1) To protect yourself if someone is injured on your property and sues you.
– Umbrella liability insurance will not only cover the cost of any medical bills, it will also pay for your legal defense if the costs add up to more than the liability coverage on your homeowners policy.
2) To protect yourself if you are in a car accident and are sued.
– After your auto liability limits are exhausted, the umbrella policy covers the rest up to the policy limits.
3) To protect yourself from slander or libel or other types of lawsuits no covered by your auto or home policy.
– For example, in our world today, something you post on social media could leave you open to a lawsuit. Million-dollar lawsuits have been filed against posters on Facebook & other social media. Umbrella policies would cover any legal costs and any settlement. Even if you win the suit, out-of-pocket legal costs can accumulate quickly.
Any one of these reasons can cost millions of dollars or more in claims. You may not have a millions dollars laying around to help cover these types of costs, but if you lose the lawsuit, the judge can award all of your assets and any future earnings until the claim is paid.
What is the Cost?
Umbrella policies do vary by type of risk. If you have a house and two cars, you could expect a premium of around $200 for $1 million dollars (For $2 million expect another $100 in premium). You may be asking yourself, “Do I really need that much coverage?” To which we can quote Jack Hungelmann, author of the book Insurance for Dummies, “You can’t control what you might injure.” You could get into an accident with someone high profile and owe thousands/millions for lost earnings.
If you can’t afford that type of premium, consider increasing your homeowners and auto insurance deductibles to $1000, which will likely save you enough to cover the cost of the umbrella insurance. On the flip side it does mean that you will have a higher out-of-pocket expense for a minor accident.
How Much Do You Need?
It is recommended to have at least a $1 million umbrella policy. If you earn more than $100,000 per year or have more than $1 million in assets, then it is recommended that you obtain more.
Umbrella coverage of at least $1 million is wise if you have assets or are earning a salary. The small amount that you will pay for this coverage is worth the peace of mind and protection you receive in return.
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