Hint: An Umbrella policy has nothing to do with rain…
Umbrella Insurance: Unexpected Financial Burden
The reason you probably purchase insurance is to protect yourself from an unexpected financial burden. Commonly, people think of the financial burden of having to pay to repair their car after an accident. Another financial burden could be rebuilding your home after a fire. One major financial burden that most people don’t think about is covering the cost of a lawsuit.
We live in a litigious world and there are always people lurking around waiting to sue others. Some lawsuits are warranted and others are not. Either way, it’s important for you to protect your assets with liability insurance so that you’re not paying for a lawsuit yourself.
Do you have enough liability insurance?
The insurance policies that you have for your cars, home, boat, motorcycle, snowmobile, etc all have liability insurance coverage, but what happens if it’s not enough? How do you even know if you have enough liability insurance? The generic answer would be that you should have enough liability insurance to cover your assets. Add up the equity you have in your home, savings, investments, and anything else you have of value. Whatever that total is, make sure you have at least that much liability insurance.
True Story – Niskayuna, NY
I was recently working with a new customer from Niskayuna in my Clifton Park office who had $300,000 liability on both his auto insurance and his homeowners insurance. He wasn’t sure when or why he chose that amount but he said that’s what he’s had for as long as he could remember. Instead of just giving him an apples-to-apples quote, I asked a few questions about the assets he needs to protect. It turns out, when we did the math, he has $1,100,000 of assets that he needs to protect. He was underinsured by $800,000 and he didn’t even realize it! I don’t expect most people to be insurance experts — that’s why I’m here. After talking through the coverage shortfall, I explained an umbrella policy to him.
What is an Umbrella Insurance Policy?
An umbrella policy provides excess worldwide liability coverage above and beyond the coverage provided by your underlying policies, such as your auto and home insurance. Umbrella policies also include some additional coverages that your underlying policies may not include, most notably for libel and slander among others. Umbrella policies typically come in $1,000,000 coverage increments.
Imagine what would happen if this customer caused an automobile accident which resulted in a lawsuit and settlement of $750,000. If he had his old policy, the policy would have paid $300,000 and he would have had to pay $450,000. That might mean that he would have to refinance his home to pull equity out or liquidate investment accounts that he was counting on having. It would have been a very bad situation for him. Now that he has a $1,000,000 umbrella policy with me, his auto insurance policy would pay up to it’s policy limit and the umbrella policy would pick up the difference. The entire $750,000 would be covered and he wouldn’t spend a penny out of pocket, because even his legal fees would be covered.
How much does an Umbrella policy cost?
You might think an umbrella policy sounds expensive. We offer umbrella policies from several insurance companies and they average about $200/year for a $1,000,000 policy. If you have a squeaky clean driving record, it’ll likely be less and if you have teen drivers, it’ll be more. When you think of the amount that the policy would potentially pay if you’re sued versus how much you pay in premium, it’s an incredible value.
For more information on an umbrella insurance policy, please Contact Us, visit our office in Clifton Park, NY, or call 518-877-7447.
John Lofrumento, CFP®, FSCP®, RICP®
President, The Lofrumento Agency
Clifton Park, NY