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It’s Not Raining … Do I Still Need an Umbrella?

By: Joe Delaney

I am talking about umbrella liability insurance and yes, you almost certainly always need it.  When I am reviewing prospective clients’ personal financial matters, I almost always find a deficiency in their personal lines coverage and it usually involves having none or too little coverage.

Let’s walk through some of the questions I am often asked and often encourage people to ask their financial advisor or insurance agent.

Umbrella insurance? What is it?

Umbrella insurance is extra liability insurance. It is designed to help protect you from major claims and lawsuits and as a result it helps protect your assets and your future. It does this in two ways:

  • It provides additional liability coverage above the limits of your homeowners, auto and boat insurance policies. This protection is designed to kick in when the liability on these other policies has been exhausted.
  • It provides coverage for claims that may be excluded from other liability policies including: false arrest, libel, slander and liability coverage on rental units you own.

What does umbrella insurance cover?

Still a bit hazy on what an umbrella policy covers? Well, let’s dig into the details a bit. Umbrella insurance provides coverage for:

  • Injuries
  • Damage to property
  • Certain lawsuits
  • Personal liability situations listed below

You’re probably thinking, “I have auto and homeowners insurance that covers some of these situations.” True! But umbrella insurance insures you above and beyond the limits of those policies and covers some situations that aren’t covered by the other types of policies.

Here are examples of the types of coverage provided by an umbrella policy and how they protect you.

Bodily Injury Liability covers the cost of damages to another person’s body. Examples include the cost of medical bills and/or liability claims as a result of:

  • Injuries to other parties due to a serious auto or boat accident where you or a family member (think newly licensed teenage male) are at fault
  • Harm caused to others as a result of your dog (yeah, you probably should have taken him to obedience school)
  • Injuries sustained by a guest in your home due to a fall
  • Injuries sustained by a neighbor’s child who falls while playing in your yard or swimming in your pool

Property Damage Liability covers the cost of damage or loss to another person’s tangible property. Examples include the cost associated with:

  • Damage to vehicles and other property as a result of an auto accident where you are at fault (consider many luxury cars can cost well over $100,000 these days)
  • Damage claims incurred when your pet rips a friend’s priceless oriental rug to shreds
  • Accidental damage to school property caused by your child

Owners of Rental Units Coverage helps protect against liability that you may face as a landlord. Examples include the cost of liability claims as a result of:

  • Someone tripping over a crack in the sidewalk of your rental property and suing you for damages
  • Your tenant’s dog biting someone and you being held responsible for the injuries

Other Liability Coverage is provided should you be sued for:

  • Slander – injurious spoken statement
  • Libel – injurious written statement
  • False arrest, detention, or imprisonment
  • Malicious prosecution
  • Shock/mental anguish

Can You Give An Example of How an Umbrella Policy Would Protect Me?

Sure. Let’s say you cause a boating accident and the cost of the injuries you cause to others is determined to be $600,000. Let’s further say that the Bodily Injury limit on your boat insurance is $300,000. Your boat policy will cover $300,000 of the injuries. But who will cover the remaining $300,000? Your umbrella policy will. It will cover the amount above the limit set in your boat policy, up to the limit you choose for your umbrella policy. Now, isn’t that peace of mind?

So How Much Do I Need?

As a very rough rule of thumb, start with $1 of umbrella coverage for every $1 of net-worth and adjust from there. If you have teenage drivers, recreational vehicles (boats, ATVs, RVs), vacation or rental properties, consider more. If you only have a principal residence, two drivers and two cars, consider less.

Your financial advisor and/or insurance agent should be on top of this for you. If not, consider a change. Feel free to contact us at Lifeguard Wealth with any questions regarding your level of coverage. We will make sure you get the coverage you need to be able to rest easy at night.

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The opinions expressed by myself and other featured authors are their own and may not accurately reflect those of Lifeguard Wealth. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

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