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.