Personal Umbrella Insurance

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An umbrella policy is also known as Personal Liability Insurance or  Excess Liability coveraage.

When you’ve spent a lifetime building assets for your retirement, the last thing you want is to get sued for all you’re worth – and losing it all.

The fact is, accidents happen all the time and the more you are worth, the more likely you are to be sued.

Let’s face it, if someone in a $175,000 Lamborghini runs a red light and hits you, you’re more inclined to hire a lawyer and sue for big bucks than if you were run over by a 1985 Honda Civic!

Auto insurance policies only cover so much. Let’s say that your auto insurance policy has a maximum of $500,000 (per accident) liability coverage.  You could get greater liability limits, but the increase in premiums would make the insurance coverage much less attractive. But because you have assets over $500,000, you might elect to get an umbrella policy to cover the rest of your net worth. The need for, and size of, an umbrella policy is directly related to one's net worth.

The key thing to remember is that liability coverage is not transferable from asset to asset. Take a typical situation: You and your spouse share three vehicles and you have a fourth vehicle for Junior, who’s in high school. On top of that, you have two pieces of rental property. First off, you are an attractive target for lawsuits. But more importantly, without an umbrella policy, to be adequately protected, you’d have to purchase the higher liability limit for each vehicle as well as all your properties. This could become very costly, very quickly.

An umbrella policy lets you buy lower coverage for each asset (four vehicles and three properties) and then purchase some “extra” liability coverage that would be applied to which ever asset needed it.

Typically, to qualify for an umbrella policy you would need to have minimum liability coverage of 250/500 for each vehicle and a minimum of $300K liability for each property.

Then you’d purchase an umbrella policy, typically $1M, but higher limits are available.

We sincerely hope not, but let’s say that you got sued for $600K because of an accident which was your fault. In that situation $250K would come from your auto policy and $350K would come from the umbrella.

You might think that the chances of getting sued for over $500,000 are slim because: 1) You’ve got to be found negligent in the accident, 2) You’ve got to create massive damage in the accident, 3) The victim needs to go through the process of suing, 4) The victim needs to win, 5) Cases are usually settled out of court for less, 6) You drive half the national average miles per year, 7) You’re a pretty careful driver with a slow car, and 8) You’re a nice guy! Unfortunately, none of that really matters.

The good news is that even if you do get sued for say, $1 million, you’d be safe because your auto insurance coverage will kick in and cover its portion, and then your umbrella policy covers you for the rest. 

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