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Do you need an Umbrella Policy?

If you own a home, you know you need to have homeowner’s insurance.  If you own a car, you know you need to have auto insurance.  But do you know if you need an umbrella policy? 

Many consumers are unfamiliar with this type of coverage and those who do know what it is often think they don’t need it.  However, if you own a house, drive a car, have an investment portfolio, have retirement savings, or want the peace of mind that comes from knowing your financial future is protected, you need an umbrella policy.

Umbrella policies sit atop your homeowners and/or auto policies and provide coverage over and above the limits of those policies.  For example, if you were at fault in an auto accident where your car slid into someone else’s house causing damage that exceeded the $25,000 property damage limit on your auto policy, you would have to pay for every dollar over that limit.  If you had a $1M Umbrella policy, the insurance company would pay for any damages from $25,001 to $1M.  This can be crucial if another person is injured as a result of your negligence.

To provide a clear picture of why you might need the protection of an umbrella policy, here are three reasons investing in the protection of an umbrella policy might be the right decision for you.

1.     If You Drive a Car

The primary reason that every person who drives a car should be covered by an umbrella policy is that serious injuries from a car accident result in huge medical bills and big pain and suffering payouts.  A policy with a $100,000 liability limit may seem like a lot of coverage, but the Arizona Department of Health Services estimates that the average cost of a hospital stay caused by a traumatic injury is $53,000.  When you add that to the cost of future medical care, any rehabilitation, psychiatric treatment, lost wages, and damages awarded for pain and suffering, it is easy to see how even a minor accident could easily result in expenses and damages that exceed $100,000.

2.     If You Own Anything

If you own a home, land, rental property, or a business, an Umbrella policy is an inexpensive way to protect these assets from being seized in a lawsuit.  When people think of their available assets, they don’t often think of investment portfolios or retirement accounts as being in the same category as a home or property.  But these assets are also vulnerable to seizure in a lawsuit and can be protected by umbrella coverage.

3.     If You are a Wage Earner

Many people don’t realize that if you lose a lawsuit and the amount of the settlement exceeds your insurance coverage, the court can seize your assets and attach your future earnings.  This means that one car accident in your twenties could result in a portion of your wages being taken until you retire.  In a Kiplinger article explaining why everyone needs an umbrella policy, they recommend anyone who makes over $100,000 a year have at least $1M in umbrella coverage.

Your insurance carrier may require you have higher limits on other policies like the ones you have for your home or car.  However, in the face of a million dollar lawsuit, small increases in these premiums and the low cost of the umbrella policy may be the best money you spend this year.

Are you adequately insured?

Every time you get behind the wheel, you run the risk of colliding with one of the millions of drivers that don’t have car insurance.  According to the Insurance Research Council one in seven U.S. drivers is on the road without insurance despite the fact that almost every state requires drivers to carry a minimum level of coverage.  The best way to protect yourself from these uninsured drivers is to make sure you have the right amount of insurance.

But how much insurance do you really need?

In order to answer that question, you need to understand what the different types of coverage are and how they protect you.

Liability coverage is usually the first listed on your policy and covers losses incurred by other people because of your negligence.  Your liability limits are listed as three numbers separated by slashes like 100/300/100. The first two numbers are your bodily injury liability coverage limits.  Bodily Injury Liability pays for the medical expenses of others who are injured in an accident that is determined to be your fault.  The first number is the limit for a single person’s medical expenses, a 100 indicates that the maximum the insurance company will pay for one person’s medical expenses is $100,000.  The second number is the total amount the insurance company will pay for all medical expenses for the occupants of the other car, so a 500 would mean $500,000.    This type of coverage will pay for the losses of the person or people you hit but will not cover anyone in your car.  The third number is the total amount the insurance company will pay for property damage for one accident meaning a 50 would provide $50,000 of property damage pay outs.  Most states require all drivers to carry a minimum amount of liability coverage.

The remaining types of coverage included in your policy protect you from losses.

The first is Personal Injury Protection coverage which is also called Medical Payments.  This covers medical expenses for you and anyone in your car resulting from an accident.

Next is Uninsured/Underinsured Motorist coverage which pays for your pain, suffering, and other damages if you are injured as the result of an uninsured driver’s negligence.

The other two common types of coverage are Collision and Comprehensive.  Both cover the cost of repairs to your vehicle.  Collision pays for damage resulting from an accident and comprehensive covers damage caused outside of an accident.  Most leaseholders and auto finance companies require that cars financed through are protected with collision and comprehensive coverage.

The first step in determining how much insurance you need is to decide which of the standard coverages you need.  The next step is to determine how much of each coverage you need.  The best starting point is to review your state’s minimum requirement, unless you live in New Hampshire, which is the only state that doesn’t have a minimum requirement.

Here in Arizona, drivers are required to have Liability coverage with limits of 15/30/10 and are not required to carry uninsured motorist coverage according to the Arizona Department of Transportation. For most drivers, this amount of coverage is not enough to provide the protection they need.  First, the limits are very low compared to the cost of medical care and the value of automobiles.  This means that if you are at fault in an accident and the medical bills of the people in the other car exceed $30,000, you will be responsible for paying for everything over and above that amount.  Second, the state minimum only provides protection for other drivers, which means you will be responsible for your own medical expenses and all car repairs.  Additionally, with a liability only policy, you will have no recourse to recover damages if someone without insurance injures you in an accident.  Third, purchasing only the state minimum won’t pay for damages or loss if someone steals your car or a tree falls on your car.

Once you know the minimum coverage required by the state, the final piece of the puzzle is to decide what you need over and above that minimum.  This will be determined by what assets you have to protect.  Add up the value of your assets including your house, car, investments, retirement accounts, bank accounts, and property and then choose policy limits that exceed that value.

Does your technology and information need insuring?

Like most small business owners, you are probably familiar with the traditional types of insurance needed to protect your business from standard losses.  For fire or theft, you need business property coverage.  For lawsuits and torts, you need professional liability coverage.  For personal protection, you need disability coverage.  But do you know what kind of coverage you need if you leave your laptop in the airport?

You may think this is a trick question; a laptop is property and therefore should be covered by business property coverage.  While your policy may or may not cover the loss of your laptop, the real danger is the loss of what you have stored on the laptop.  If your business retains any personally identifiable information about employees, customers or clients, losing your physical laptop is the least of your concerns.

According to an article in Network World, the financial risk of a data breach or data loss can be substantial.  Many states have specific regulations governing the actions a business must take in the event that sensitive data loss occurs.  These regulations spell out fines and penalties that can be levied against businesses who fail to comply.  If your company is at risk, it makes good business sense to investigate what coverage is available and determine if there is a cost/benefit case for obtaining coverage.

What is Data Breach Insurance?

The information age has created a whole new category of risk for businesses.  One of the most common risks is the release of personally identifiable information, whether done accidentally or intentionally, of clients, customers, and/or employees.  Personally identifiable information includes social security number, bank account numbers, credit card numbers, driver’s license numbers, and medical information.  Privacy laws prohibit businesses from making information in this category public or available.  However, unintentional access, data loss, or the release of sensitive data does happen and when it does, data breach insurance protects businesses from the financial ramifications.

Who Needs It?

Not every business is vulnerable to the type of risk covered by data breach insurance.  If your business captures, utilizes, or stores information that falls under the personally identifiable information umbrella, your business is at risk.

Why Your Business Needs It

You only need to scan the news to see that most companies are not safe from this kind of exposure.  Laptops get lost or stolen, hackers infiltrate servers, paper files fall into the wrong hands, and people access information they should not be accessing.   Many business owners don’t realize that the breach alone is enough to cause significant financial and regulatory consequences.  Even if no customer information is utilized inappropriately, no credit card numbers are stolen, and no medical records are released, the end result for your business is the same.

Types of Coverage

Data breach coverage includes both 1^st party response expenses and 3^rd party defense and liability expenses.  This means that as a policy holder, your business is covered for the expenses related to responding to a data breach including investigation, forensic analysis, legal support, public relations, notification, and other expenses directly related to your company’s response.  Your business is also covered in the event that someone sues your company for damages as a result of the breach.  To determine what limits, deductibles, and other factors are right for your business, work with your insurance professionals at Canyon Lands Insurance.

Is your home protected?

No homeowner wants to have to file a claim against their homeowner’s policy.  Whether the claim is a result of Mother Nature or a stroke of bad luck, filing a claim means you have suffered some kind of loss.  Even something that seems superficial can impact our sense of security and if there is any place on the planet where we should feel safe, it is in our own homes.  Our homes hold more than just our possessions.  They also hold the memories of days gone by and dreams of days yet to come, none of which can be replaced by an insurance company, no matter how great a policy you have.

As a homeowner, there are steps you can take to minimize the risk of loss and safeguard the safety and security of your family.  While some seem like common sense, we often overlook the most common things that would keep our homes whole and our families safe.  For example, everyone knows that it is very important to have a smoke detector on every floor of your house and to check the batteries regularly.  However, according to the National Fire Protection Association, two-thirds of the deaths caused by house fires in the years between 2005 and 2009 occurred in houses without a working smoke alarm.  Additionally, the majority of smoke alarm failures can be tied back to missing or dead batteries.

Below are 5 tips all homeowners can take to safeguard themselves against loss.

1.     Assess Your Risk of Water Damage

Many people think the only cause of water damage is flooding but water damage caused by plumbing problems, leaking roofs, broken pipes, and other non-flood related events is far more common.   If you have a basement, make sure you have a floor drain or sump pump to remove any unexpected water.  If you use the basement for storage, make sure valuables are stored in such a way that unexpected water will not cause damage.  You should also have your plumbing inspected annually.

2.     Check Smoke Alarms and Fire Prevention Equipment

Verify that all smoke alarms are working and that fire extinguishers are easily accessible throughout the house.   Keep track of fireplace, wood stove, chimney, and heating system inspections and cleanings so you know they are occurring on a regular schedule.  Replace any frayed or damaged cords and be sure you know how to shut-down the power in the house if there is an emergency.

3.     Be Prepared for Storm Season

Here in Arizona, monsoon season brings high winds that can cause serious damage.  Minimize the risk of tree damage by inspecting your property and taking care of loose limbs and dead trees. Make any necessary repairs to siding, windows, and roofs to prevent further damage from high wind and torrential rain.  Create an emergency plan and stock emergency supplies to ensure your family’s safety in an emergency.

4.     Deter Would-Be Home Invaders

One of the best ways to prevent a break-in is to make your home unappealing to thieves.  Installing a home alarm system, exterior motion-sensor lights, and deadbolt locks are all ways to make it harder and therefore less appealing to get inside.  Keep track of all house keys and make sure windows and doors are locked when you leave and when you settle in for the night.

5.     Complete a Comprehensive Home Inventory

In the event that you do experience a loss, it can be very challenging to remember exactly what was lost and to be able to establish the value of all possessions.  Completing a home inventory prior to experiencing a loss ensures you will have the information if it is ever needed. Be sure to include receipts, appraisals, pictures, and video with your inventory and store the physical inventory offsite.