Every day in which you set foot out of bed, you expose yourself to some sort of risk. That is why you buy insurance: car, homeowner, renters, life, health, etc. The world is uncertain and you need to protect what you own. Unfortunately, that protection may not always be enough. For certain individuals, to be fully protected they need an Umbrella Liability policy.
What is an Umbrella Policy?
Essentially a UP acts like an umbrella, shielding you from the flood of risk life throws at you. On top of your auto insurance policy, as well as homeowners, you can get an umbrella policy that gives you extra liability protection. If you look at your current auto insurance policy, you will probably be familiar with the three numbers that make up your bodily injury liability and property damage liability insurance. Ordinarily, as is the case with car insurance in New Jersey, or California, you can get $500,000 maximum coverage for those types of auto insurance. While that seems high, you should know that 13% of all car accidents have settlements above $1 million. An umbrella policy will cover the amount your normal policy can’t. Limits usually start at 1 million and go up to 5 million, with some companies even offering up to $10 million worth of coverage. Still, that type of accident is exceptionally rare, so why would you need so much coverage?
The Types of People Who Should Get an Umbrella Policy
The prime candidate for an umbrella policy is someone with many assets. A golden rule of insurance is that you want your net worth covered. If you are involved in a large accident causing a million dollars worth of damage, but only have a $300,000 BI limit, other drivers can sue against your assets to make up for the cost. The money in your 401k which you saved for your whole career could be gone because of one accident. Someone with few assets is rarely sued against, because the cost and hassel of a legal proceeding is not worth the small amount that person can ultimately pay back. If you have the wealth already though, you become a prime candidate for being sued.
To figure out your net worth, you want to first figure out your debt. Once you know what you owe, figure out what you own, then subtract those two numbers. If that figure is greater than $500,000, you should get an umbrella policy.
What If You Have Modest or Little Assets?
There are some circumstances where even if you have modest or little assets, you should consider an umbrella policy. These people include someone who frequently drives with other people, or hosts people in their home. Essentially, when you invite people into dwellings which you insure, your home and car, you are taking on a liability. If someone were to be injured, you are on the hook for any possible expenses.
So, if you find yourself carpooling your child’s little league team often for example, perhaps you should consider an umbrella policy. Even if your assets are modest, if there is something to lose, an umbrella policy would protect it.
Rideshare drivers would also benefit from an umbrella policy. As we discussed here, rideshare drivers face a gap in coverage that only a handful of states have remedied. If you are one of the million drivers in states that do not have rideshare coverage, an umbrella policy may be the answer to assuaging your fears of turning your car into a cab.
What Should You Expect for Cost?
Compared to the cost of other policies, an Umbrella policy is relatively inexpensive. According to the III, a $1 million policy should cost between $150 and $300 per year with every extra million costing about an extra $50 to $75. The cost can be greater though for policies covering more people, or for people deemed “risky” by the insurance company.
An umbrella policy is worth it for people with a lot to lose. Accidents can be very costly, which is why you should always get the best insurance you can. It may not always be enough however, for a small cost every year you can wash away any fears you may have of losing what you have.