Understanding the Need for Umbrella Insurance


Understanding the Need for Umbrella Insurance

by Amy Lignor


In a world where it seems like there are millions of different insurance policies that the ‘average joe’ has to understand, one is quite easy to be educated on, and the reasons for having it are very simple to understand.

Umbrella insurance was created so that a person could attain a form of liability insurance that would supplement the basic liability policies (i.e., auto, home or renters insurance) the person already has in place.

The reason why it is so important to invest in a personal umbrella policy is clear. For everyone, the car, house, investments and retirement accounts – as well as future income – fall into the asset column. So it is important to understand that if you are sued for a lot of money and do not have enough liability insurance, or an umbrella policy to cover those costs, all of your assets are immediately exposed. People typically choose to buy an umbrella policy because they want to prevent the possibility of financial ruin due to one misstep made during their lifetime; or even one unforeseen accident, such as being held responsible for damages because of a car accident. By having umbrella insurance in this particular situation, you automatically have protection to prevent a negative outcome that could take away everything in your asset column overnight. If another party files a lawsuit against you and wins, the umbrella coverage will pay for damages you’re legally held responsible for up to the policy limit.


So what does it cover and how does it work? Those questions are also easy to answer. As far as what a personal umbrella insurance policy covers, it provides that additional coverage or “excess liability” above the limits of your basic policies. It can protect you from bodily injury liability claims, property damage liability claims, as well as broader forms of coverage like helping with legal fees.


The umbrella policy pays once your basic liability limits have been exhausted or the claim doesn’t fall under the insurance policies you already have. If a settlement amount exceeds your coverage limits, you are responsible for paying the remaining amount out of pocket. With the umbrella insurance, however, you won’t have to.


When it comes to the amount you have to spend to get an umbrella insurance policy, it is nice to know that this is not an extraordinary expense. In fact, an umbrella policy typically starts in the range of $150-$200 for a one million dollar policy. Your premium will increase if you decide to increase coverage; however, getting twice the amount of coverage will not usually double the cost of your premium.


To choose how much umbrella insurance you should carry, there are three areas you need to think about:


First is risk. The risks you may face (take into consideration risks as a homeowner or even more when it comes to renting out property); the risk of causing an accident during your work commute; and, any potentially dangerous activities you participate in that could put others around you at risk.


Second, the value of your assets. These include properties, possessions, stocks and bonds, savings and retirement funds. The more assets you have to protect, the higher the umbrella policy limit you should consider.


Lastly, consider the potential loss of future income. Liability lawsuits can result in loss of both current assets and future ones, so even those with few assets to protect at this time need to consider the long-term ramifications a serious lawsuit could bring. To do his, review your future income by considering your earning potential. If you’re on track for a high-paying career one day, a lawsuit could actually target money you haven’t even earned yet.


In the end, it is always best to speak with your personal, or an independent, insurance agent to determine your specific risk factors. To keep those assets in check, they are the skilled experts who can customize coverage for your unique needs. Putting a plan in place will help ensure that you don’t end up behind the eight ball.




Source:  BaretNewsWire.com





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