The definition of liability is “the state of being responsible for something, especially by law”. Insurance policies offer liability coverage to protect you in case you’re deemed responsible for an accident but what happens if your liability insurance coverage isn’t enough to cover the damages you cause?
Most people do not plan to be in a life-altering accident or served a civil lawsuit, but these occurrences happen around the country every day. By the time someone realizes they are underinsured it is normally too late. The good news is there is a very cost-efficient way to protect your family and assets from situations like these by purchasing an umbrella insurance policy.
An umbrella policy is an additional layer of liability insurance that will supplement your primary insurance policies such as home, auto, renters, or tenant-occupied dwelling. The umbrella insurance is designed to protect you from large and potentially devastating liability claims or judgments and it becomes activated once your underlying liability limits have been reached. If your limit of liability on your auto policy is $250,000 per person and someone has medical claims of $500,000 the umbrella is there to provide coverage for the excess limit.
How much does Umbrella Insurance Cost?
These policies are generally sold in increments of a million. The lowest limit you can purchase is 1 million in coverage, the next would be 2 million and some companies can go as high as 100 million. Rates are dependent upon the amount of coverage selected and how many underlying assets and applicants are needed to be insured. It generally costs about $150 a year per 1 million in coverage.
How much Umbrella Coverage Should I Carry?
When deciding to purchase an umbrella policy you must review three things:
- Total Assets– What is the total value of all your assets? This includes all property, possessions, stocks, bonds, and savings or retirement accounts. Setting the value of your umbrella based on the value of your assets will provide more coverage than basing it off your net worth because it doesn’t take in regarding your debts. This could potentially help you avoid having to sell your home in order to pay a judgment.
- Potential Risks– A financially catastrophic event could leave lasting and permanent damage. If you are supporting aging relatives, or your children are entering college, you need to make sure you have enough coverage to protect you during these crucial moments.
- Future Income– Yes, your FUTURE earnings could be at stake if you have a judgment against you. When deciding how much coverage you need you must consider your earning potential. You could be in the middle of starting a new company or a new career. There have been many situations where people’s wages were garnished for years to pay off a judgment.
A horrific accident can occur at any time and someone’s life could be changed forever in an instant. For just a few hundred dollars a year you can guarantee your entire life’s work will not be wiped out completely by an unexpected lawsuit. Our agents will be happy to help walk you through the process to determine the best umbrella solution for you and your family!
Examples Of Umbrella Insurance Claims
You are responsible for a head-on collision with another vehicle. There are multiple people in the vehicle that are critically injured and will require specialized treatment and life care plan. You receive a $980,000 bill for their medical cost.
Your teenager crashes the family car through a neighbor’s fence and hits the side of their house. After the accident, your neighbor sends you a $340,000 bill for the repairs.
Your tenants throw a birthday party for their 8-year old daughter. A child falls off a slide and sustains serious injuries on your property. The parents of the child decide to sue your tenants, and because they didn’t have renter’s insurance they sue the property owner for damages.
Someone claims they injured themselves on your property and decides to sue you. The legal process takes 2 years to get to trial and the jury finds the plaintiff negligent for their own injuries. Even though you won the lawsuit, your attorney fees and court cost are $440,000.