As an experienced financial planner, one of the most common questions I get asked is, “Do I need to purchase umbrella insurance?” The short answer, most likely, is yes. Adequate umbrella insurance can save you millions, especially if you are a high-earner, have sizable assets, or are in a career where you could be liable for the accidents and injuries of others.
What is Umbrella Insurance?
Umbrella insurance is personal liability insurance designed to supplement your home and auto insurance. It extends beyond the limits of insurance you already have, providing an extra layer of security against things like auto accidents, property damage, and vandalism. Perhaps most importantly, umbrella insurance is essential in providing protection against lawsuits for injuries and damages caused to people and/or properties.
Your umbrella insurance will kick in once you have reached the liability limit on your basic home or auto insurance policies. For example, if you are sued for an amount that is larger than the limits on your auto or homeowner’s policy, umbrella insurance will help to cover the remaining amount.
Who needs it?
Umbrella insurance is a wise decision for anyone; however, it is absolutely necessary for those at more risk of a lawsuit. This group includes business owners, doctors, landlords, and those in any occupation where they could be liable for the well-being or property of others. In addition, individuals with sizable assets and a high net-worth could lose significant sums of money in a lawsuit and are therefore encouraged to purchase adequate umbrella coverage.
Nevertheless, even an individual without large assets should strongly consider purchasing an umbrella policy. Lawsuits are becoming more and more common, and even if you do not have a high-net worth, you could be forced to pay off a lawsuit with your future earnings. Thus, umbrella policies protect both your current assets and your future income.
Lifestyle is another important consideration. Do you own a boat and often take friends to the lake? If so, you could be sued for injuries caused to a passenger. Other sports like skiing, hunting, or climbing can also raise your chances of being responsible for the well-being of others, increasing your need for extra liability protection.
How much umbrella insurance do I need?
Typically, you should have at least enough umbrella insurance to cover your individual net worth. However, since liability judgements can quickly rise above the net worth of even wealthy families, it can be rational to own even more. Umbrella insurance is usually sold in million-dollar increments, and you can easily purchase a million-dollar policy for around $150 a year. Thus, umbrella insurance is an inexpensive and foolproof way to safeguard your current assets and protect your family’s future.
Uninsured/Underinsured Motorist Coverage: Do I need more?
Umbrella coverage can protect you in another important way, by protecting you against damages done to you by an uninsured or underinsured motorist. Once standard, today this coverage typically must be added to umbrella policies as a rider. Here’s why it’s important. In the US, more than 1 in 10 drivers have no car insurance, and an even larger percentage of drivers possess only the state minimum coverages. If you are harmed by one of these drivers, medical bills will overwhelm any coverage they have quickly. When an uninsured or underinsured driver is at fault, there is no recourse for paid damages other than this coverage.
Your auto policy contains this coverage, but only up to your coverage limit. Since bills and damages resulting from car accidents can rise so quickly, especially in cases of disability and permanent harm, uninsured motorist coverage is a vital piece of protection for your family.
Each family’s circumstance is different and may call for different amounts or types of coverage. Not all umbrella insurance policies are created equal; they all carry different coverages and various policies. Work with an advisor of financial services in Utah County who specializes in insurance planning to ensure that you purchase the proper amount of umbrella insurance to protect your family, assets, career, and lifestyle.
At TrueNorth Wealth, we are fee based financial advisors in Utah County who specialize in insurance planning. Our mission includes ensuring that you are covered by a comprehensive insurance bundle tailored to your individual circumstances.