Why Purchase Umbrella Insurance?

July 20, 2016

Weston Wolfe

Categories: Insurance

Why Purchase Umbrella Insurance?

The answer to this question in the simplest of terms is Risk. Every renter or property owner has an inherent risk of liability simply because they own or rent property. Yes, your homeowner’s or renter’s policy will provide liability coverage, but the coverage is typically limited to $300,000 and in many cases, this may fall well short of your needs if an action is brought against you.

How It Covers

A Personal Umbrella Policy adds a layer of protection on top of all your underlying personal policies. It will provide additional liability coverage for:

  • Homeowner’s coverage
  • Renter’s coverage
  • Personal auto insurance
  • Watercraft Insurance
  • Motorcycle Insurance
  • RV Insurance
  • Landlord Insurance

Since most personal insurance policies have maximum limits of only $300,000, you are at risk if the claim can’t be settled for the limit in your policy. For example, if you are in an at-fault car accident, it would not be difficult for the injured driver or drivers and passengers to accumulate over $300,000 in injury expenses that you would be held responsible for. Any amount of awarded damages over your liability limit is going to come out of your pocket.

Remember, car accidents are not always the result of one car versus another car. Many times they are the result of one car, causing a multi-car pileup or driving through a convenience store. Without a Personal Umbrella Policy that increases your liability limits to a million dollars or more, say goodbye to your investments, savings accounts, and any other assets that are not protected from a lawsuit.

How do I know if I need Umbrella Coverage?

The easiest way to determine if you need a Personal Umbrella Policy is to add up the value of your assets. Anything over the liability limit of your auto, home, renter’s, boat, motorcycle, and RV insurance policies is at risk of being lost if an action is brought against you.

As an example, let’s estimate your assets at risk to be:

  • Vacation home equity $200,000
  • Residential home equity $250,000
  • Savings account $60,000
  • Non-ERISA (unprotected investments) investment accounts $100,000
  • Auto and boat equity $30,000

Total assets at risk = $640,000

Now let’s use a hypothetical car accident where you are at-fault, and the other parties suffered significant injuries. After the lawsuits are settled and the insurance carrier pays the limit of your $300,000 liability coverage, you are left with an outstanding debt of $340,000. Without a Personal Umbrella policy, you can say goodbye to several of those assets that you worked hard to accumulate but failed to protect.

There Is Good News

The good news is that most Personal Umbrella Policies are very affordable. A typical one million dollar policy can cost as little as $250 per year depending on your situation. Most insurers will offer limits of $1 million to $5 million dollars without many underwriting questions. Call your agent or broker and find out how little you’ll pay for so much coverage.