6 Questions About Umbrella Insurance

Have you ever heard of umbrella insurance? Maybe your agent tried to sell it to you when you bought your home and auto policies. Umbrella insurance, also called Personal Liability Insurance, provides protection in the event you are sued. We live in an incredibly litigious society, and it seems you can get sued for pretty much anything. Although some lawsuits are justified, many are frivolous. Either way, you need to protect yourself from the financial devastation a lawsuit can cause.

What does umbrella insurance cover?
If you are sued by someone and the judge/jury finds you guilty, your umbrella insurance policy will pay the claim up to the amount of coverage you have purchased. I like to call this “trip and fall” insurance, because if someone trips and falls on your lawn and sues you because of it, you are protected.

Doesn’t my home and auto cover liability?
Your home and auto policies do provide liability protection, however there are 2 important caveats. 1) Your auto liability coverage will only pay out if you are sued because of something involving your car, the same with your home. 2) Your home & auto policies probably have $100k – $300k of liability coverage. Let’s say your auto policy provides $100k of liability coverage. If you are sued for $500k because of an auto accident, your auto insurance will pay the first $100k and you would be responsible for the remaining $400k, unless you have an umbrella insurance policy. But what if you are sued because you slandered someone on Facebook? Your auto insurance doesn’t cover that! Your umbrella insurance policy will pay the claim if you are convicted. Plus, since the insurance company is on the hook for the liability, they will provide you with a quality lawyer.

How much does it cost?
Umbrella insurance is REALLY cheap. $1 million of coverage should cost $150 – $300 per year.

How much do I need?
The better questions is, how much do you have to lose? Umbrella policies are sold in $1 mil increments. At a minimum, I would always carry $1 million of umbrella coverage. The only exception being if you are completely judgment proof, meaning if someone sues you, there is nothing for them to get. Always be sure you have more coverage than your net worth. And don’t forget about your largest asset – your ability to earn money! If you are a high income earner, consider having enough coverage in the event that a lawsuit requires you to pay out of your income over a number of years.

Where do I get an umbrella policy?
Typically, you will have to purchase your policy from the same company that have your home and auto insurance policies through.

Do I really need another insurance policy?
Umbrella insurance is one of the few things that I recommend to ALMOST every one of my clients. Although a lawsuit isn’t very likely, it is a very big deal that could permanently damage your ability to accomplish your financial goals.

Do you already have umbrella insurance? If so, how did you find out about it? If not, are you going to get it now?

Alan Moore is a fee-only financial planner and founder of Serenity Financial Consulting in Shorewood WI. Follow him on Twitter @R_Alan_Moore. You can contact him atalan@serenityfc.com, 414-455-5313, or visit his website at www.SerenityFC.com. Want more education? Download your free guide to the “10 Easy Steps To Securing Your Financial Future Today.”