A lot of people have a love-hate relationship with insurance. It’s complicated, often expensive, and for some reason your premiums always go up even though you never file a claim. But unless you count yourself among the uber-wealthy, insurance is the only way to protect your family’s finances against catastrophic loss.
Most traditional insurance policies – home, auto, watercraft – carry a basic level of liability coverage that protects you for damage you cause to other people and/or their property. In the majority of cases, that coverage is sufficient to protect against all losses involved. But it’s entirely possible that at some point in your life, you or someone in your household will be deemed liable for an incident that results in catastrophic losses. In that event, any damages exceeding the limits of your liability coverage are paid out of your pocket.
That’s where umbrella insurance comes in. As the name implies, umbrella insurance provides an extra layer of liability coverage for situations where damages exceed the underlying limits in your home or auto policies. It covers medical expenses and property damage, and even covers the necessary legal expenses to defend you in court. An umbrella policy can’t prevent a tragedy from happening, but it can protect your family’s assets during a time of great loss and uncertainty.
Here are some scenarios where an umbrella policy would provide protection:
- Your teenage son answers a text while driving and accidentally causes a multi-vehicle accident. The resulting medical and property damage costs exceed the limits of your auto policy.
- Your dog attacks a neighbor walking their dog outside your home. The neighbor sues you for medical costs (human & canine), lost wages and pain and suffering.
- After attending a football-watching party at your home, a friend drives home drunk and dies after running off the road. The widow sues you for negligence in her husband’s death.
Now realistically speaking, these situations are rare. But not so rare as to be entirely off your radar. In an unpredictable and frequently litigious world, it seems fair to acknowledge that so-called outlier events can happen to any of us. Umbrella insurance is an important tool that can prevent a personal misfortune from becoming a financial catastrophe.
And since these situations are rare, umbrella insurance is fairly inexpensive. You can usually get an additional $1 million in coverage for a couple hundred dollars a year. However, most insurance companies require a specific level of underlying insurance before they’ll add an umbrella policy, so you may have to “top off” your basic policy before adding the additional protection.
Umbrella insurance won’t cover everything in a tragic event. It won’t
cover your health or property (you’ll need your own health and property insurance for that), nor will it cover anything associated with a business you own or operate. And it won’t cover intentional damage you cause, or any criminal acts.
But even if you’re not wealthy, umbrella insurance is worth a look. It’s
flexible and relatively inexpensive, and could go a long way in protecting
your wealth. It’s something you’ll likely never need, but also something
you should not be without.