Why an Umbrella Policy Might Make Sense For You

SCENARIOS WHERE AN UMBRELLA POLICY MAKES SENSE


1) You drive a $12,000 SUV, have a 12 year old son, are a homeowner, and worth $3 million dollars.
You never go out to party on the weekends anymore. Your idea of a good time is snuggling up with your husband to watch Revenge on DVD. In six years, your son plans to go off to college at a cost of $50,000 a year for 4 years. You also have a homeowner’s insurance policy with $500,000 in liability coverage and a $5,000 deductible.
Assessment You are an average risk person. Get an umbrella policy with liability coverage between $2 million to $3 million. Weight the value of peace of mind vs. the increase in monthly premiums for higher coverage. Make a decision what the likelihood is that you will be sued for your entire net worth. $3 million is a nice figure that lots of people would love to lay their hands on. Your SUV is probably not worth getting comprehensive auto insurance, so just got with liability. If it gets destroyed, it sounds like you can easily buy a new one.

3) You drive an $8,000 Nissan Altima, are the only working spouse, have three kids, are a homeowner, and worth $750,000.
You spend all your time at the office and then at home with the kids. Seldom do you ever go out. You’ve sworn off alcohol ever since you drove your car straight into a tree six years ago. You are working like a mad person to provide for your family and wonder whether tuition costs will continue to spiral out of control. Every time you think of the fact that three people are depending on you, you start to get a panic attack.
Assessment: You are an average risk person who definitely needs an umbrella policy. You do everything a normal person would do as determined by the insurance actuaries, but you’ve got three dependents. If something happens to you, or you cause an accident, a lot of people will be negatively impacted. Not only get a $1 million umbrella policy get another $1-2 million in term life insurance policy that will go towards your kids if you die. A comprehensive auto policy is probably a waste of money, but it depends on your liquid assets and how safe of a driver you are now.


3) You drive a fast car and have a net worth of $1M (one million dollars).
You enjoy hitting the bars and clubs every weekend in your $75,000 BMW M3. Your hobbies include snowboarding, rock climbing, sky diving, and poker. Given you go out on the weekends, you also tend to have at least one drink before getting behind a wheel. At the age of 36, you just don’t want to settle down and have amassed a nice nut.
Assessment: You are higher risk than average. Get an umbrella policy with liability coverage of at least $1 million if not $2 million given you’re in the growth phase of your career. Also get comprehensive auto insurance that covers the damage of your car and liability of around $500,000 per accident.

4) You have two teenagers and a net worth of $600,000.
Try as you may, you feel you can no longer control your children. They aren’t very good students, aren’t going to win any athletic scholarships, hang out with the wrong crowd, and have a lot of angst. Because you don’t want to be the uncool mom, you allow your teenagers to drive.
Assessment: Your teenagers put you at huge risk because you are responsible for all their actions before the age of 18. Every day you pray they come home safe. Absolutely get a $1 million umbrella policy! Your teenagers could bankrupt you in a heartbeat!

5) You are a landlord and/or business owner with a $350,000 net worth.
When you have customers, you invariably open yourself up to more risk. I feel sorry for doctors who are trying to save lives but constantly operate under the assumption they will get sued by their patients. As a landlord, no matter how hard you screen your tenants or assess the safety of your unit, something bad may happen. Same thing goes from running any business.
Assessment: You absolutely should get an umbrella policy worth $1 million or greater for potential garnished wages. Landlords should have landlord insurance and business owners have various business insurance options. The world is a very litigious place. Live the American dream but protect yourself.



Example that does not need an umbrella policy:
You drive a $27,000 Jeep, earn $65,000 a year, are married with a non-working spouse, have no children, do not own a house, have $8,000 in credit card debt, and are worth a combined total of $60,000. At the age of 27, your vehicle is a blight on your finances because of the cost. All that money spent paying the monthly payments could go towards a down-payment on a house, or investments in the stock market. You still feel young and invincible with an attitude that you can work forever!
Assessment: You are a risk taker because you’re putting your life in harm’s way with poor financial habits. As a result, you will likely never amass a net worth even close to $1 million. This is great because you therefore don’t need an umbrella policy. Your expensive comprehensive auto insurance policy which acts as a lead balloon on your net worth will do.