Umbrella Policies: Small Cost, Big Protection
Most people don't think much about personal liability insurance until someone slips on their sidewalk and threatens to sue. Whether you know it or not, you likely already have some type of insurance that protects you in case you're liable for an accident or an injury. This sort of coverage is often bundled with car, renter's or homeowners insurance. Still, you may want to add additional liability coverage through an umbrella policy.
Not only are umbrella policies relatively cheap, they even cover accidents outside the home such as a weekend softball game when your errant throw hits someone in the face. "Everybody should buy an umbrella if they can afford it," says Adam Rothschild, an independent insurance agent and risk manager at the family-owned Rothschild Agency in Merrilville, Indiana.
Personal liability umbrella policies can protect you if you are sued for an accident you're involved in on your property or somewhere else --often even if the accident occurred in another country. It can also protect you if you are sued for slander or libel, accidents that occur on your rental property or mental anguish.
Coverage for an umbrella policy generally starts at $1 million, although insurance companies will happily sell you more protection at a price. You may, in fact, want a larger policy since the coverage can protect your future earnings as well as your life savings.
Big claims do happen. About 13 percent of personal injury liability settlements and court-ordered awards are $1 million or more. A report by ACE Private Risk Services shows that wealthy families often underestimate the risk to their lifestyles by not carrying enough liability insurance. The report also notes that judgments in some U.S. civil cases have run into tens of millions of dollars.
The good news: Umbrella policies are relatively inexpensive, especially when compared with the coverage that they can provide. "It really depends on what you want to cover and where you live," Rothschild says. "I'd say it will range from $250 to $500 a year for a $1 million-dollar policy that covers the family, house and a couple of cars." The amount you'll pay for premiums will depend on many factors, including the driving histories of everyone in the household, your credit score and your overall risk profile. If you own a boat or host a lot of parties, you may have to pay a higher premium.
Working with an independent insurance agent can help you determine the right amount of coverage needed for your family. An agent can also help you compare liability insurance quotes and find discounts on multiple policies.
If you own a small business, you might want to check into a commercial umbrella policy, which provides extra liability coverage in addition to your company's existing policies. Adding $2 million of commercial umbrella coverage to an existing $1 million general liability policy, for example, would effectively provide up to $3 million in protection.
Although an umbrella policy covers many costly risks, it doesn't protect you from risks related to your own business (even if you operate it from your home). This includes babysitting and child care services you provide in the home. It also doesn't include fines and penalties for breaking the law, or intentional damage caused by you or a member of the household. Your policy may have other exclusions, so be sure to read it carefully. Ask your agent if you have any questions.
You should also be aware that you can be turned down for umbrella coverage, even if you have homeowners liability and auto insurance and have been faithfully paying your premiums. Insurers may refuse to sell you umbrella coverage if you have a trampoline, a pool with a diving board or other potentially hazardous property, according to the International Risk Management Institute (IRMI).
IMRI notes that companies may also deny umbrella coverage to people with poor driving records or with homes that have fallen into disrepair. If you're turned down, keep shopping: Another company may be willing to sell you a policy, although you may have to pay a few extra hundred dollars a year.
When you've decided to add umbrella liability coverage, consider your net worth. You want a policy at least equal to your net worth and ideally more in case you're ever hit with a financially catastrophic court judgment that could impact future income, well beyond your current net worth. Talking to a lawyer who specializes in wealth protection or a financial advisor is the first step in determining your actual net worth.
In a perfect world, you wouldn't have to worry about things like accidents and lawsuit-happy neighbors. But If things go wrong, you'll be happy to be carrying an umbrella.
Personal Umbrella Insurance 101. International Risk Management Institute. https://www.irmi.com/articles/expert-commentary/personal-umbrella-insurance-101
What is Umbrella Liability? Insurance Information Institute (III). http://www.iii.org/article/what-umbrella-liability
Determining Umbrella Insurance Cost. Trusted Choice. https://www.trustedchoice.com/umbrella-insurance/coverage-rate-cost/