Do You Have Enough Umbrella Insurance?

Most insurance policies out there don’t protect all of your assets. One lawsuit could cost you millions of dollars, wiping out your savings and, potentially, putting you into bankruptcy. An umbrella insurance policy is an extra layer of protection beyond your basic car and home insurance policies. This protection helps you cover an unforeseen catastrophic financial loss. (See how little it will cost to add an umbrella insurance policy.)

Imagine that you are at fault for a car accident that injures another driver. You currently have a $500,000 limit on your auto insurance. However, the other driver has a high-paying job and can’t work for a year due to the injuries she sustained. She sues you for $2 million and your car insurance only covers up to $500,000. A personal umbrella policy could cover the difference.

Society has become much more litigious, with headlines of million dollar settlements frequently in the press. The recent Large Loss Journal 2013 by the Fireman’s Fund Insurance Company, outlined several recent settlements and the magnitude of exposure:

Settlement: $14 million in May 2013

Situation: A worker was electrocuted while working on a house owned in the name of an LLC listed on the homeowner’s policy. The worker was feeding a low-voltage wire when the wire came in contact with a live wire.

Settlement: $12.4 million in May 2012

Situation: An intoxicated man dove into a pool and sustained catastrophic injuries. Despite the “no diving” signs, the water level was two feet below normal, and the jury heard expert testimony that no injury would’ve incurred if the water level was at the normal height.

Settlement: $3.8 million in October 2012

Situation: A toddler was attacked by a dog in the confines of her own backyard. The dog’s owner was a friend visiting the family at the time.

We all have assets we want to protect and we all face the potential risk of lawsuits. Assess your current risks, your tolerance for risk, and your financial capacity to cover those risks to determine an estimate of what coverage you need:

• How likely are you to face a lawsuit from someone?

• Do you have young/teenage drivers?

• Do you have a swimming pool or trampoline?

• Do you have dogs/other animals?

• Do you frequently have guests over your house?

• Do you have a lengthy rush-hour commute?

• Do you currently own investment properties?

Also consider covering at least your net worth and expected future income/savings. The higher your current or expected income, the higher limits you may desire.

In today’s uncertain economic times, affluent consumers are more likely to be targets of multi-million-dollar lawsuits. Keep in mind that in many states, if someone is found only 1% responsible, he or she can be held liable for 100% of the damages to the injured parties.

Umbrella insurance provides you with reassurance that your assets are protected at a nominal cost. We suggest re-evaluating your risks and discussing your umbrella coverage with your financial advisor.

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