Umbrella Coverage

Do you need Umbrella Coverage? Image via lladnaar on Flickr

They say that what you don’t know can hurt you and when it comes to umbrella coverage, this saying is definitely true.  Despite our sue-happy culture, many people who need the protections offered by an umbrella policy have never heard of this kind of personal liability coverage.  Even those who have heard of it often see it as something frivolous or something that only people with a lot of money need to have.  Unfortunately, these are common misconceptions about who needs umbrella coverage that can lead to serious financial consequences.   Here are four reasons almost every adult in America needs to invest in an umbrella policy.

1.     It Only Takes One Accident
It takes a split second of inattention to cause a car accident and that one accident can impact your financial circumstances for the rest of your life.  You may be one of the people who believe that having car insurance protects you if you are found liable in an accident, and it does, but only to a point.  The problem is, the point at which protection stops is often too low to protect you from the ramifications of a serious accident.  Let’s say you carry 100/300 liability insurance on your car.  This means that you have $100,000 of liability protection for each individual involved in the accident up to $300,000 total.  Medical bills add up fast and it doesn’t take a life-threatening or disabling injury to push your liability past that $100,000 milestone.  This means that if there are serious injuries that result in disability or death of another person, you will not have enough insurance coverage to pay for the resulting lawsuit or settlement.

2.     It Protects Your Future Earnings
In the event you are sued and the judgment or settlement exceeds your insurance coverage, the court can garnish your wages for as long as it takes to pay off the portion of your financial obligation that is not covered by the insurance company.  This means that you could be paying for that one split second for the rest of your life.  This can make it difficult to do the things you want in your life like travel, buy a house, or pay for your children to go to college.

3.     It Protects Your Current Assets
Just as a judgment or settlement can result in a wage garnishment, it can also affect your current assets.  If you own a home, a car, any property, or valuables like antiques or jewelry, you can be made to liquidate or relinquish these assets in order to pay for your financial obligation.  That one split second can cost you everything you have worked for to this point in your life in addition to compromising your financial future.

4.     It Protects Your Investments
Although investments are assets, most people don’t realize that in this context they are the same as everything else you own and can be used to pay for judgments against you.  This means that your 401K, retirement accounts, college savings accounts, and stock portfolio can all be wiped out by that one split second of inattention.

By increasing the limits on your liability coverage with an umbrella policy, you can protect the life you have built and the future you are building.  The right limit for you will depend on what your net worth is, how much you make a year, your age, and other factors.  Your insurance agent can help you decide if a $1M umbrella policy is adequate for your needs or if you need to purchase a higher limit.


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