When it comes to financial security and peace of mind, insurance is one of the most critical components in your financial plan. Most people are familiar with auto, health, and homeowners’ insurance, but there’s another kind of coverage that often gets overlooked: umbrella insurance. Here are the seven most important points to understand about this often-undervalued insurance policy.
1. What is Umbrella Insurance?
Umbrella insurance is a type of personal liability insurance that goes above and beyond the coverage limits of your standard policies, such as auto and homeowners insurance. If you are held responsible for damages that exceed the limits of your existing policies, an umbrella policy can cover the remaining costs. It serves as a ‘safety net’ for your financial well-being.
2. Who Needs It?
While many assume that umbrella insurance is only for the wealthy, this is a misconception. Anyone who has assets to protect, or future earnings that could be garnished, should consider an umbrella policy. If you own property, have significant savings, or engage in activities that could potentially result in lawsuits (such as being a landlord), an umbrella policy can offer invaluable protection.
3. Coverage Range
Umbrella insurance typically starts with coverage of $1 million and can go up to $5 million or more. It kicks in when the liability limits of your other insurance policies have been exhausted. It’s a relatively inexpensive way to gain a substantial amount of additional liability coverage.
4. What It Covers
Umbrella insurance generally covers personal liability claims, including but not limited to:
- Bodily injury
- Property damage
- Certain legal costs
- Some types of non-business-related personal injury claims like slander or libel
5. What It Doesn’t Cover
Umbrella insurance is not a catch-all policy. It usually won’t cover:
- Business losses
- Contracts you’ve entered into
- Criminal or intentional harm
- Damages to your personal property
Umbrella insurance is often very cost-effective, especially considering the level of coverage it provides. For roughly $150 to $400 per year, you can get a $1 million umbrella policy. The peace of mind and financial safety net it offers can make this a worthwhile investment.
7. How to Get an Umbrella Policy
If you’re interested in getting umbrella insurance, start by contacting your current insurance providers. Many companies offer discounts for bundling multiple types of insurance. You’ll typically need to have your auto and property insurance policies with minimum coverage levels in place before you can add an umbrella policy.
In summary, umbrella insurance is a strategic way to protect your financial assets and future income from devastating lawsuits. While not everyone may deem it necessary, those who have a considerable amount at stake should give it serious consideration.