Why do most people buy insurance? Risk primarily. Fear can play a role, but most of the things we fear never actually happen. Peace-of-mind is the hope (it’s much better than a claim). What kind of insurance coverage makes the most sense? Cost effective protection from a catastrophic risk. One of the best examples of this is Umbrella Liability Insurance.
How does it work? Homeowners, auto and watercraft insurance policies offer liability protection up to certain limits. Umbrella Liability Insurance is designed to add an additional layer of liability protection in the event of a lawsuit. Umbrella Liability Insurance is designed to “kick-in” when liability protection on an underlying policy has been exhausted. An Umbrella policy must be coordinated with all underlying risks (homes, boats, properties, etc.).
Who is at risk? If you own a home, office building, car, watercraft, vacation home, etc. you are at risk. Young drivers are more accident prone. Visible community members with the appearance of “deep pockets” can be targeted. Pools, pets, and trampolines can increase your risk. You can reduce your risk but you can’t eliminate it. Most people don’t experience a lawsuit, but it can happen to anyone.
How much do you need? As a general rule, the higher your net worth the more coverage you need. However, it doesn’t just apply to the wealthy in today’s litigious society. Most of the middle class should consider coverage with the potential for a lawsuit targeting assets and future earnings. Umbrella coverage typically ranges from one to five million dollars but can go higher. You may have to increase liability protection on underlying coverages (homeowners, auto, etc.) to qualify.
What’s the good news? It’s cheap! Although it varies, $15 per month may get you one million dollars of umbrella liability coverage. Costs do increase incrementally as the coverage amount goes up, but most people find it inexpensive relative to the catastrophic protection provided.
As with most insurance products, there are many nuances to consider. It is helpful to find a reliable property and casualty insurance agent who can shop rates, obtain multi-policy discounts, and consider the claim history of a company. If you would like to discuss further, please call or request a discussion at your next meeting.
The above discussion is generic and informational only. In some cases Retirement plans and Trusts may add a layer of liability protection. Please confirm all specifics with your insurance agent and/or attorney.
