Insurance: Don't Forget Your Umbrella

Umbrella Insurance is just like it sounds.  It’s insurance coverage over and above your other insurance policies and extends your coverage for personal or business liability.  It’s an affordable and easy way to increase liability coverage without changing and paying for coverage on all of your underlying policies.  This includes both personal umbrella and commercial umbrella policies. 

Cover Your Assets

Yes CYA is the primary reason for umbrella insurance.  Even though this is personal liability coverage and not personal property or business property coverage, your assets become exposed, and at risk, when you are exposed to liability.  If you are sued and there is a sizable judgement against you or your business, a plaintiff will execute on that judgement and seek possession of your assets to satisfy the judgement. So the need for an umbrella policy and extended personal and business liability coverage is a means of protecting your personal property and real property.

Who is at risk

As to personal liability, your exposure increases as our station in life improves and we accumulate more assets.  You get promoted and make more money, and you buy a home, and you own more cars. Your family grows and gets older and there are more living under one roof who all have matters going in different directions.  All of these things increase our risk of personal liability and make us a target for lawsuits.

And don’t think it can’t happen to you. You live in a litigious society, and although its not likely that you will incur a large judgement against you, it can happen.  For example, you didn’t get in a car accident yesterday and its not likely you will be in a car accident today but you still carry auto insurance just in case something happens. Likewise, if the personal liability coverage is not enough you need an umbrella policy as well.  

When you were younger and had no family and rented your home and drove an older used car.  If someone obtained a judgement against you in excess of your coverage limits, there was nothing to take and the plaintiff couldn’t collect beyond the insurance that you had (usually the state allowable minimum).  You were "judgement proof," so to speak, at that point.

It’s not until you accumulated wealth and assets that you are perceived as having deep pockets... or at least some pockets.  Maybe not like Walmart or the government, but enough to make others notice and believe it's worth the time and effort to collect against you to obtain recovery.

There are mistakes and accidents that happen and you can be found to be legally at fault. In such instances, others have a right to recover, and it is necessary and part of our civil justice system to make the plaintiff whole. So having adequate insurance is a must.  Not to mention, It provides peace of mind and allows you to sleep at night,

Protect Your Home

For most people, their home is their largest and most valuable asset.  If you are sued in a lawsuit you first need insurance in order to defend on that lawsuit and many time the cost of defense is just as much as the damages caused. This consumes insurance coverage.  Then if you lose that case and judgement is entered against you, the other party may look to is your home to satisfy that judgement as it has the most value.  This can also lead to bankruptcy and all the economic disruptions associated with such economic difficulty.

As the value of homes and real estate is going up, the need for umbrella policies is becoming more evident.  You will also find more of your financial advisors suggesting umbrella policies to protect the funds that they are managing. See our articles on professional E & O (errors and omissions).  These professionals don’t want to be sued for malpractice, by allowing the funds they manage to be at risk, in addition they want you to have to adequate protection.  So make sure and take that advice and talk to your trusted insurance agent and financial advisors about your need for an umbrella insurance policy.

Affordable Umbrella Coverage

Umbrella insurance is generally very affordable for the amount of coverage. This is because there is another policy underlying the Umbrella policy that must be exhausted before the umbrella coverage kicks in.  Most carriers will write umbrella policies of one million ($1,000,000) to ten million ($10,000,000) dollars at an affordable monthly cost. 

If you had to increase the coverage as increasing each policy you have to those limits of liability would be way too expensive. The same applies if you own a business, one umbrella will extend the liability coverage for the business. (See the companion post for Commercial Umbrella policies.)

So, your good fortune should remain with you. So don't forget your umbrella coverage.