Let’s clear up any confusion from the start. What is umbrella insurance? Much like it sounds, umbrella insurance is designed to offer you even more liability coverage on top of your existing car or home insurance. Think of it as an additional roof over your head, protecting your assets. Most people have auto and home insurance, but umbrella insurance is unique because it’s a single policy that covers you when you run over the liability limits of your other policies. Simple right? Let’s break it down so that it relates to your life.
Tell Me More about Umbrella Insurance!
Umbrella insurance is what’s known as a secondary policy. In order to implement it, you must have a primary auto or home insurance policy. Umbrella insurance does not act as a substitute for your primary policy and will not be applied unless you have a primary policy.
So how do I know if I need umbrella insurance? Ask yourself the following questions at the start:
- What is the value of my assets?
- What are the legitimate risks associated with my lifestyle?
- If I was involved in a lawsuit, would the liability costs associated wipe out my hard earned savings and assets?
Unfortunately, we live in a highly legalistic world in which lawsuits are common. The potential for being sued in an auto accident or even on your own property is high and can have devastating effects.
How Does Umbrella Insurance Apply to Me?
Imagine that you’re nearing retirement age. You’ve always been well-insured and cautious in your decisions. You have a healthy amount of cash in your bank account and plenty of equity in your home. While out driving one day, you have a collision and hit another car. The damages to your vehicle are minimal, and your insurance will cover it, but the other driver is a different story. With multiple injuries and the real risk of extended time off of work, a judge rules that you must now pay the injured party millions of dollars for their suffering and loss of income while they rehabilitate.
This is a potentially disastrous experience unless you have umbrella insurance. In this case, your umbrella insurance takes over to cover the gaps in your other policies. Just like it sounds, umbrella insurance has you covered in the event of unexpected situations to help you weather the storm.
What Does Umbrella Insurance Cover?
As discussed above, umbrella insurance only works as a secondary policy that will cover your primary plans when it has been maxed out. Umbrella insurance is your protection for the unexpected and unpleasant. It includes things like coverage if you are found liable and need to pay damages as well as legal defense in the case that you are sued.
What Are Some Other Examples of Situations Where Umbrella Insurance Is Useful?
Do you have a dog? Perhaps an aggressive dog? Here’s an example. Your dog bites a neighbor, the neighbor suffers nerve damage in their hand meaning that he can no longer use a keyboard for long stretches of time, an integral part of his job. Now he is suing you for loss of income and medical bills that will include expensive physiotherapy sessions. Your neighbor is no longer speaking to you, and they’ve also launched a campaign to have your dog put down. Now other neighbors know about the lawsuit, and you don’t feel quite so comfortable in your neighborhood anymore. The situation has quickly escalated. Without umbrella insurance, it’s likely that you’ll lose more than just your dog. Your savings, house, and additional assets could be wiped out. You need to be prepared for any kind of unexpected situation.
What About Landlords, Should They Have Umbrella Insurance?
Landlords can be easy targets for lawsuits because there are multiple opportunities for things to go wrong, such as:
- Someone slips on the stairs of your rental property
- Someone drowns in the pool of your rental property
- Your tenant destroys another unit when they leave the sink running, and now a third party is suing you for the damages
The fact is, lawsuits have become an easy cash grab for unscrupulous individuals who often target landlords. Protect yourself and know the facts about umbrella insurance and your coverage as a landlord.
How Much Umbrella Insurance Is Enough?
To answer this question, let’s revisit the three questions you asked yourself as a starting point.
- What is the value of my assets?
The more you have, the more you have to lose. If you’ve spent a lifetime of hard work accumulating your assets, the last thing you want is to be financially ruined because of one freak incident. Your umbrella insurance coverage should then be directly correlated to the value of your assets. The more value, the higher your coverage.
Lifestyle Is Directly Related To Coverage
- What are the legitimate risks associated with my lifestyle?
Do you have multiple vehicles for all seasons that you enjoy using? A simple rule is the more time you spend on the road, the more potential there is for risk. The Sunday driver who uses their car only a few times a week is less likely to invest in umbrella insurance because their risks are lower than a frequent driver. Similarly, the person with a pool and tiki lounge themed backyard who loves to entertain is going to have many more associated risks than the person who prefers a quiet evening alone, inside on the couch.
What Do You Have to Lose?
- If I was involved in a lawsuit, would the liability costs associated, wipe out my hard earned savings and assets?
Umbrella insurance isn’t just about covering the assets you already have, but also takes into account the potential for future income. If you’ve already invested heavily in your education and are on-track for a high-earning, successful career, you may want to think about umbrella insurance as a protection against your future potential income.
What Now?
So you’ve had a good look at the risks and liabilities in your own lifestyle. What should you do next? We recommend moving to the next step, speaking to an agent about the facts of umbrella insurance and how we can keep you covered. Contact Smallwood Insurance now, or fill out our convenient form to have an agent contact you. Let’s start the conversation.
