An umbrella insurance policy, or excess liability policy, kicks in when other policies such as auto insurance, renters insurance, or your homeowners insurance policies reach their limits. You may not think you need this additional coverage, but here are a few reasons why it makes sense.
While your existing insurance policies offers some liability coverage, they may not provide adequate protection if you’re caught in a substantial lawsuit. For instance, if you’ve already purchased the maximum policy limit of $300,000 and someone sues you for $1 million, you’d find yourself drastically underinsured.
Should you lose the lawsuit you’re responsible for the additional $700,000 and satisfying the judgment could include selling assets including your car, house, and investments. You may also need to forfeit future income to pay the outstanding debt.
Fortunately, umbrella policies are a very affordable option that can kick in to pay the amount above what your other insurance policies pay. However, umbrella insurance does not cover all risks. Flooding and some other perils require specific insurance.
Insurers sell umbrella policies in $1 million increments up to a maximum of $10 million in some cases. This higher limit ensures you’re well-protected if your net worth is above your existing policy limits.
Insurers require policyholders buy certain minimums before they provide umbrella coverage. For instance, they may require a $300,000 or $500,000 limit on your homeowners insurance policy and often $300,000 combined limit or $250,000/$500,000 split limits on your automobile insurance policy before they’ll provide a $1 million umbrella policy. However, the additional protection ensures you close insurance gaps and protect your vulnerable assets.
Umbrella Policies Provide Broader Coverage
An umbrella insurance policy provides protection beyond what you’ll find in an auto, renters, or homeowners insurance policy.
It can pay for significant property damage or injuries caused to others in an at-fault auto accident. An umbrella policy can also help cover medical and other costs related to third-party injuries sustained on your property such as a fall or dog bite. An umbrella policy is often a great choice for landlords too, since they are more susceptible to liability lawsuits.
Other protections may include libel or slander and malicious prosecution should you file a lawsuit and the accused responds with a lawsuit of their own. Your policy may compensate you for legal fees up to the policy limit.
Those with significant assets may have already bought the maximum amount their auto and homeowners insurance policies allow. However, this doesn’t mean they have enough coverage. An umbrella insurance policy provides additional protection and the base amount normally doesn’t increase significantly for each policy increment.
Discuss Coverage With Your Agent
Your insurance agent can properly assess your risk, protect your current and future assets, and find the most affordable coverage for your needs.
Everyone needs proper insurance coverage, but especially those with substantial net worth. With so much to lose, it doesn’t make sense to risk everything for the nominal cost of an umbrella insurance policy.