Personal umbrella liability insurance: what you need to know

Dollar Bag Under Umbrella
KJ: If you are like us, you’re working toward your goals. And working toward your goals (be it children’s education, retirement, or just financial independence) means saving money. Over time, you want to see that your money is protected in the event something happens. Most of the time, you have insurance for that – health insurance, disability insurance, etc. All of this to say that there’s a lesser known type of insurance that can help cover pesonal liability above and beyond what’s already on your home or auto insurance (plus some additional coverages), and it’s called umbrella insurance. Umbrella insurance isn’t as the name implies. It’s not coverage for when it rains – though it may be thought of as a protector for a very rainy day personally!

As you build your wealth (or maybe you’re already there!), this can be a critical component of your overall financial well-being. Personal umbrella coverage basically serves as an umbrella over your homeowner’s insurance and car insurance, kicking in extra coverage amounts above and beyond your homeowner’s and car policies. Plus, liability coverage amounts are significantly higher than under your existing policies (i.e. with coverage amounts $1 million and greater).

How it works
So, let’s say you have $300,000 worth of liability coverage on your homeowner policy and $1 million of coverage with your umbrella policy. If someone trips and falls on your property and has a massive claim against you (yes, it was that bad of a fall!…who knows!) for $500,000, then generally the homeowner policy would pay the first $300,000, then the umbrella policy will step in to kick in the other $200,000.

It’s cheap
Relatively speaking, it is a very cheap insurance to have for significant amounts of coverage. As with all insurance policies (and companies), there are a few things that could impact your coverage costs – pool, lots of land, and potentially other factors – but for around a couple hundred dollars per year, you can obtain $1 million in coverage. So, why not cover your family in the event of a catastrophe for such a cheap insurance?

It provides additional coverage
Additionally, umbrella insurance actually covers several scenarios that are NOT part of your standard homeowners or auto policies. In fact, they often cover slander, libel, false arrest, and many other personal liability scenarios (note: not business liability).

Some assets may be protected
Keep in mind that all states vary based on what is considered protected in the event of a bankrupty, but generally, some (or all) of your house can be protected and your retirement assets may be protected too. However, for a lot of your other assets, you may need some additional protections.

So, call your financial advisor and/or your insurance agent to discuss the coverage to see if you may need additional protection.

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