What is an Umbrella insurance, aka Personal Liability Insurance?

 - Umbrella insurance is an insurance policy that will cover any damages exceeding the limit on your regular insurance policy. 

For example, lets say you are involved in a motor vehicle accident and you injure 4 people, medical expenses are $200k and one of the occupants is a famous plastic surgeon making $2 million per year. He is unable to work for 6 months, therefore he sues you for $1 million dollars and wins. Car insurance will cover $250k. Who will pay for the rest?  YOU. If you have umbrella insurance that gap will be covered. 

 

Do you need Umbrella insurance?

If you answer yes to one or more of these, consider having one. 

- Have over $100-$150K in assets

- High income earner or anticipate to earn a six figure salary in the near future.

- Own a pool, trampoline or boat. (Makes the risk for liability higher)

- You engage in sports that have the potential to injure other people like skiing, surfing, hunting etc. 

- Have a young driver in the household. 

- Own multiple properties. 

- Own aggressive dog breeds which have the potential to cause significant injuries to others. 

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Umbrella insurance Coverage.

Covered-

- Injuries to others; health related/material expenses etc. 

For example; You host a garage sale in YOUR front yard and one of the guests gets close to the backyard fence and gets bitten by YOUR dog, after all is said and done you get sued for $300k worth of bills/pain suffering, your homeowners insurance would pay up to $100k guess who would end up paying the remaining $200k? YOU. If you had umbrella insurance would cover this scenario. 

- Property damages of other's. 

- Your legal defense fees. 

Not covered-

-Your injuries

-Your property damage. 

-Intentional criminal acts. 

Costs 

Average cost of a 1 million dollar umbrella insurance policy is $350-500 dollars per year.

The typical policies go in 1 million dollar increments, are fairly cheap when all things considered.

It really depends on the coverage and risk you are dealing with it. 

Remember you may need to maximize all of the auto, boat insurance before the insurance company will cover you. 

How much coverage do I need?

You want the policy to be able to cover your entire net worth. 

Calculating Net worth; Assets (properties, cash, stocks)  - Liabilities (loans, money owed) = Net worth. 

Remember the 401k/403b is usually protected by law, your primary residence is also protected in most of the states by Homestead, however to be sure please check with your state laws. 

How to get Umbrella Insurance?

This is the simplest yet trickiest step, in my opinion talking to your insurance broker is your best bet. He will shop around for the best rates, after you can choose. 

Many insurance companies will sell this product just be sure to browse and shop around. 

Hope this Helps.

Till Next Time,

JL

Disclaimer - This blog is meant purely for educational discussion of finance. It contains only general information about financial matters. It is not financial advice, should not be treated as such.