Asset Protection and Umbrella Coverage


Clients often ask me if I think it is a good idea to have personal umbrella insurance coverage.  My answer is invariably "yes."

Personal umbrella insurance is additional liability insurance designed to pay out on top of your existing auto and homeowner’s/renter’s insurance policies. For example, you may have $300,000 in liability coverage on your car insurance. If you get in an accident and a judgment is rendered against you for $1,000,000, you would be on the hook for $700,000 which is the excess above your normal automobile coverage.  An umbrella policy kicks in when your other insurance runs out.  Therefore, in the above example, if you had a $1,000,000 umbrella policy, your auto insurance would pay the first $300,000 and the umbrella would pick up the balance.

In addition, an umbrella policy can fill in other potential liability gaps by providing coverage for other incidents like liability for rental properties or being sued for slander or libel.

Here are the main reasons why I would recommand getting umbrella coverage:

     1.  Although being may seem unlikely, it is possible.  Just look at any court docket and you will find that people are being sued all the time.  There are many scenarios where you can be sued for more than $100,000.  Probably the most common example is a car accident. Medical costs alone can exceed $100,000 per person easily. Now imagine if there were 2, 4, or even 6 people in the car. Imagine if some of them were children.  An umbrella policy could protect against liability for these events.

     2.  Even frivolous lawsuits can be expensive.  If someone sues you for a frivolous reason, you’ll have to pay for an attorney to you.  This can be expensive.  With an adequate umbrella policy, your defense costs will typically be covered as part of the umbrella policy.

     3.  Umbrella insurance is relatively inexpensive.  It will probably cost you about $250 a year for $1 million in coverage. That’s basically $10 per month for a lot of peace of mind.