Protect Your Assets with an Umbrella Policy: When is it Advisable?
Every individual and business owner wants to ensure that their assets are protected in case of an accident or lawsuit. With a personal liability coverage of $500,000 each on auto and home, you might wonder if an additional umbrella policy with a $1 million limit is necessary. In this article, we will explore the scenarios where an umbrella policy might be beneficial and help you decide whether to invest in one.
Do You Need Additional Protection?
The amount of protection you need depends on the value of your assets and your earning power. If your home is worth $2 million, you should consider protecting the entire value. Conversely, if your combined home and other assets are less than $750,000, your existing coverage is sufficient.
It is important to evaluate your overall financial situation to determine if you need more extensive protection. If you have significant assets that could be at risk, an umbrella policy can provide an additional layer of coverage against large settlements.
What Does an Umbrella Policy Cover?
An umbrella policy steps in to cover situations that your home and auto insurance policies would typically refuse to pay, such as incidents that occur off your property or outside your vehicle. For instance, if you accidentally injure someone’s pet dog while shopping, the pet owner could sue for damages, including vet bills and their personal pain and suffering. An umbrella policy would cover such an event, ensuring that you are not left to pay out-of-pocket.
The process involves the insurance company arranging for a lawyer to get in touch with you to understand your side of the story. They will then decide whether to fight the case in court or settle out of court. Importantly, the cost to you will be your annual premium, not direct damages from the lawsuit.
When Is an Umbrella Policy Advisable?
Umbrella policies are surprisingly affordable, offering significant protection for a reasonable price. A $1 million coverage limit is not overly expensive but may not be sufficient for a realistic verdict in severe injury cases. However, if your liability exceeds $1 million and you have assets to cover any shortfall, it may be worth considering.
To decide whether an umbrella policy is right for you, ask yourself this question: “If I face a judgment of more than $1 million, do I want an insurance recovery?” If your answer is yes, then purchasing an umbrella policy with adequate coverage can help protect your assets. If you decide that the cost is not justified, you can use your own assets to pay any potential judgment.
Consult Your Insurance Agent
While the scenarios above provide a general guideline, it is crucial to discuss your specific situation with your insurance agent. They can help you understand the limits of your current policies and what additional coverage an umbrella policy might offer. Your agent can also advise you on the cost and the coverage that would be most beneficial for you.
Investing in an umbrella policy is a significant decision. By thoroughly evaluating your financial situation and consulting with your insurance agent, you can make an informed choice that best protects your assets.