Umbrella insurance: what it is and why you may need it

By | November 4, 2013

I just listed this article on Constant Content, and since I’m selling usage rights only, I thought I’d share it here, too. Oh…and while I’ll be compensated if this article sells on Constant Content, I’m not being compensated by any insurance company.

Umbrella insurance won’t keep you from getting wet if your umbrella breaks in the middle of a monsoon, but it can protect your family from something much more devastating: financial ruin. Sound hyperbolic? It’s not. Lawsuits can easily exceed the limits of automobile or homeowners insurance, and you can be sued for all kind of things those policies don’t cover.

What an umbrella policy is

Let’s say you cause an auto accident that injures the other driver to the tune of $500,000. What happens if your vehicle policy only covers bodily harm up to $250,000? Is that just tough luck for the other driver? No. Depending on state law, you may have to give up your investments, your retirement policy, and a chunk of your salary. You may even be forced to sell your home, with any equity going to the other driver.

An umbrella policy fills in that gap. Adequate umbrella insurance can protect your family’s financial assets if you’re sued for amounts that exceed your other policies or aren’t covered by them. Policies usually start with coverage of $1 million, but you may need more, depending on your assets.

 Situations where an umbrella policy could save your financial future

  • You cause a car accident that exceeds the limits of your policy.
  • A guest at your home is injured tripping on a broken step.
  • A child is injured on your trampoline or in your pool.
  • You’re sued for slander for something you said on Facebook.
  • Your dog bites your neighbor or destroys their property.
  • Someone is injured on a rental property you own. (You could even be held liable for the actions of your renter.)

 What to do now

As a quick check, you can add up all of your assets (home equity, retirement accounts, investments, wages, etc.) and compare the total to the amount covered under existing insurance policies. If your assets are more than your coverage, you would almost certainly benefit from an umbrella policy. Even if your assets don’t exceed your coverage, there are situations homeowners and auto insurance don’t cover. To be safe and to protect your family, talk with your insurance agent, who can advise you based on state law and your personal situation. Umbrella insurance is typically very inexpensive when weighed against the peace of mind it offers.

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