Many people have the mistaken impression that umbrella insurance is only for the ultra-affluent. But that’s not true. Personal finance specialist and CPA Mitch Freedman says, “As long as you earn a livelihood, you should have an umbrella policy.” That’s because if you do lose a lawsuit, you can be held personally liable based not only on your current assets, but also on all future earnings. Wages can be garnished as part of a legal settlement.
An umbrella policy protects you from that risk. It adds liability protection over and above your homeowners and car insurance up to a limit you choose. Most policies cover you up to $1 or $2 million, but there are higher amounts available.
Why Get An Umbrella Policy?
Here are the three key reasons you may want to get an umbrella policy:
1. To protect yourself if someone is injured on your property and sues you. The 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 involved in a car accident and are sued. After your insurance is maxed out, the umbrella policy covers the rest up to the policy limits.
3. To protect yourself from slander or libel or other types of lawsuits not covered by your home or auto policy. For example, in today’s world, what you post on social media could leave you open to a lawsuit. Million-dollar lawsuits have been filed over a Facebook post or Tweet. The umbrella policy would cover any legal costs and any settlement. Even if you win the suit, out-of-pocket legal costs can mount quickly.
Any one of these reasons can add up to a million dollars or more in claims. You may not have that much on hand, but if you lose the lawsuit, the judge can award all your assets and any future earnings until the claim is paid.
What’s the Cost?
Umbrella policies do vary by risk. If you have a house and two cars, you can expect a premium of about $200-$250 for $1 million and you can add on a second million for about $100-$150. Do you really need $2 million? Well, you can’t control whom you might injure. You could injure a CEO or professional ballplayer and owe millions for lost earnings.
If the premium is preventing you from exploring your options, consider increasing the deductible on your home and car insurance policies, which likely will save you enough to cover the premium cost of umbrella insurance.
The bottom line is this - umbrella coverage of at least $1 million is a good idea if you have any kind of assets or are earning a decent salary. The small amount you pay for the coverage will give you a lot of peace of mind and protection.