Don’t Get Caught in the Rain (Umbrella Insurance 101)
What Is Umbrella Coverage?
You wake up and look out the window only to find it pouring rain. But no one can call out of work because of a little water so you adjust your wardrobe for the weather. A few layers in case its cold and rain boots pulled over your pants. Walking around with a wet hem on your pants is a terrible way to start the day. As you walk out the door, you put your hooded jacket on, grab your bag, your lunch, the returns you have to make after work and the hand outs for the morning meeting. Arms full, you dash to your car and throw everything into your passenger seat.
It’s not until you get to your work meeting that you realize the rain splatter got on your handouts and the ink is running down the page. You can’t read anything. Your hair stayed dry because of your hood and your feet are dry because of your boots but if you’d only had an umbrella, maybe your handouts would have been spared. This is an example of how using a physical umbrella can save you from an accident but how does this relate to umbrella insurance?
Think of your jacket and your rain boots as your normal insurance policy. They are going to protect you from the imminent threats so you may think that’s all you need but you could be wrong. Adding the extra protection of an umbrella, both physically and in an insurance manner, can keep you high and dry when you really need it.
With a normal liability policy, you are going to have certain limits. Once those limits are exhausted, an umbrella policy can kick in to take care of the rest of the damage. It is used mostly for large scale claims and lawsuits. Both of these situations can drain your resources if someone wants enough money. If you cause an accident and the victim is awarded a $3 million award but you only have limits of $1 million, you could lose everything trying to pay the rest of the award. Having an umbrella policy can help protect your finances and investments.
What Does It Cover?
Umbrella policies are going to insure you above and beyond what your normal policy coverage is. It really comes in handy if you’re sued for an extravagant amount of money. Many of us don’t worry about this happening but we all hear about the frivolous lawsuits people bring to court every day. Even if you manage to avoid paying a court ordered amount, sometimes the cost of legal fees is enough to make you go broke.
Umbrella policies are available under your auto and home insurance policies but check with your insurance company to see if you only need one or both of them. For auto insurance, an umbrella policy will add an extra layer of protection to your bodily injury and property damage liability limits. If you get into an accident and the claim is larger than your established limits, the insurance company would first utilize all the funds in your standard policy and then begin to tap into your umbrella coverage. But we all know that extra protection isn’t necessarily free. Sometimes you have to pay for your peace of mind.
So How Much Does it Cost?
Coverage for this kind of policy starts at $1 million and additional amounts can go all the way up to $10 million. The limits you set is going to be what determines your rate increase but even at the minimum, you can expect your annual premiums to rise by at least $100 if not more. That may not sound too expensive but some insurance companies have stipulations on adding an umbrella policy.
They may require that you have certain limits on your car and if they aren’t high enough, you may not be eligible. If you choose to raise your coverage amounts, that is also going to increase your annual premium. You can help lessen the payment pain by raising your deductibles but make sure that you can pay that amount of pocket. It doesn’t matter how much coverage you have if you can’t meet your deductible. Adding an umbrella policy to a comprehensive insurance plan may be a wise idea but it can get expensive. Make sure that you’re spending your money wisely and find out if this is your best option.
Do I Need It?
While anyone can be sued for millions of dollars, if you aren’t monetarily worth very much, most people won’t bother making the effort. If you have many assets and investments though, umbrella coverage should probably be on your insurance plan and you might want to re-examine your umbrella coverage amounts. The New York Times reports that wealthy people are under-insured by thousands, putting them at risk for danger. And your financial portfolio isn’t the only thing to consider when trying to decide if you’re a risk. Dog and pool owners are also prone to lawsuits. While the damage sought may not run into the millions, it could possibly exceed your average amount of liability coverage.
The best place to start your research is with your insurance agent. You will need to purchase an umbrella policy through your current provider because it’s an add-on to the plan you already have. Your agent will be able to help you figure out how much of a risk you run exceeding your coverage limits and just how much umbrella insurance to purchase. Once you decide upon an amount, the additional cost will be part of your annual premium. It might not make you happy to see an increase in price but it’s certainly worth it to protect what you’ve built.