Many of the people I meet with do not have an umbrella policy or even know that it’s an option. So, what exactly is an umbrella? I’m going to tell you two stories, illustrating the two parts of an umbrella policy.
Part 1: Asset Protection
Years ago, I worked with a young couple buying their first home. They had never heard of an umbrella policy, but once I shared why it was important, they totally understood, and luckily decided to add that coverage.
A little over a year later, the husband was driving with his best friend. The best friend was in the passenger seat, not wearing his seatbelt. My client lost control of the vehicle while on a windy, wet road. The vehicle crashed, and the best friend died at the scene.
The best friend’s family sued my client. It took two years to settle, without going to court. Luckily my client had an umbrella policy, which covered the extensive legal fees and the settlement. While his auto insurance covered up to policy limits, the rest of the financial settlement was covered by the umbrella policy.
Had he not had an umbrella policy in place, it would have been financially devastating. A large portion of the attorney’s fees would have been out of pocket and future earnings could have potentially been garnished.
Part 2: Excess Under & Uninsured Motorist Coverage
I had another client, who as a teenager, his father was driving and got hit by someone who had low limits on their auto insurance. The crash put the father in a wheelchair permanently and caused ongoing medical expenses.
Initially, some of the medical bills were covered by the at fault party’s insurance. However, they had low limits which didn’t even cover the initial medical bills, much less the ongoing ones that he will have for the rest of his life. In addition, the father was no longer able to work.
Had there been an umbrella policy in place, the excess underinsured motorist coverage from that would have covered those costs.
The Cost
The average umbrella policy premium is only $25 per month. That $25 gives you $1 million more in coverage – including asset protection and excess under and uninsured motorist coverage.
Having an umbrella policy is so important, whether you consider yourself to have no assets or plenty of assets worth protecting. Umbrella policies start with $1 million dollar limits. For those who may need more coverage, we recommend having an umbrella policy with limits that are one to one and a half times your assets. If you have a financial planner, check with them on suggested limits.
You don’t want to have future earnings taken or have to take out a loan or money from your 401K, other investments, or retirement savings to cover a liability cost that insurance could have covered. And you definitely don’t want to deal with the financial hardship that can come from massive medical bills or dealing with the legal system.
In case you missed it – we have created a guide on What Policyholders Need to Know About Home & Auto Insurance.
We hope this information helps you to make more strategic insurance decisions. We’d love to hear from you – please reach out! We are here to help.
