Financial planning is not only about accumulating wealth, but also protecting it. There are three ways that many people—other than you, that is— believe they can get rich quick: inheritance, hitting the lottery and litigation.
That neighbor of yours that comes to your barbecue and has too many cocktails and falls on your driveway? He could sue you. Have a teenage driver or a pool? Many accidents involving either one of these can happen in which someone may try to benefit off of your hard-earned savings. Is everyone is out to get you? Of course not. But you need to protect yourself.
Here's the good news: There is a cheap solution that can offer you big-time protection. It’s called personal umbrella liability insurance.
Personal umbrella liability insurance, or umbrella insurance, kicks in when you reach the underlying liability limits on your homeowners, condo, rent, or auto policies. It can even cover you for such things as libel and slander. In today’s extremely litigious society, an umbrella liability policy is a must-have for anyone holding $250,000 or more in assets. (For more, see: 3 Reasons to Get Umbrella Insurance.)
Umbrella Policies 101
Let's start with some important information that underlies this type of insurance:
- Personal injury liability settlements and awards reach $1 million or more in 13% of cases.
- Roughly 20% of families worth more than $5 million do not have umbrella policies.
- Approximately $380 annually can provide protection for $1 million to $2 million.
- Liability through auto and home policies often fall below $500,000.
- There are minimum liability limits that one must have on property and casualty insurance to get umbrella policies.
As an example, say you have a trampoline in the backyard that your kids and their friends often play on together. One day, Timmy from across the street falls off of the trampoline and breaks both of his legs. Timmy’s dad is a well-known personal injury attorney and decides to sue you. Your homeowner’s policy has a liability coverage limit of $400,000. Timmy’s dad sues you for $750,000. If he wins the case, you will need to come up with $350,000. However, if you have an umbrella policy for $1 million, your umbrella policy will cover the rest of the lawsuit settlement and you won’t need to deplete your savings.
For a couple hundred bucks a year, it is a must-have for responsible families. (For related reading, see: Family Wealth: Thankfulness vs. Gratefulness.)
Umbrella Policy Coverage
Umbrella policies provide coverage for personal injury or property damage, which may be caused by you, your family, or by potential hazards on your property for which you are liable. This includes attractive nuisances, some examples of which include trampolines and swimming pools. Personal umbrella liability insurance also features coverage for incidents that occur away from your home—for example, if your dog bites a neighbor.
Umbrella policies also offer extra protection for your vehicles beyond your auto insurance policy. And they cover slander, libel, wrongful eviction, or false arrest. Lastly, it covers lawyer fees should you need to defend yourself.
For a few hundred dollars a year, you can protect your family—and your future nest egg. If you have substantial assets or own a pool, a trampoline, jet skis, or if you have teenage drivers, etc., make sure that you aren’t opening yourself up to the risk of someone using you as their get-rich-quick scheme. Do not ignore how important it is to protect the assets you’ve worked so hard to accumulate. (For related reading, see: 5 Financial Planning Decisions You Won't Regret.)