Jonathan M. Gardey, MBA, CFA®, CFP®
President and Chief Executive Officer
In a time of aggressive legal actions, the need for umbrella liability insurance is more important than ever. Unfortunately, umbrella policies are often overlooked or falsely believed to be reserved only for the ultra-wealthy, but what this coverage protects against is invaluable. Umbrella policies are designed to (1) protect the insured from liabilities that exceed the underlying liability limits on their auto, homeowners, or renters insurance policies and (2) shield assets from high-value lawsuits.
But, how much do they cost? And are they worth it? In most cases the annual premium for an umbrella policy is less than what an attorney would charge for just one hour of work defending a claim.
Let’s dive into some details to give you a better idea of why an umbrella policy should be considered.
Why Should I Consider an Umbrella Policy?
No one is perfect. No matter how careful we are, there are a number of opportunities for us to cause major injury or property damage every day. The problem is that different policies have different types of liability limits, which means your assets and family could face substantial risk in the event you do accidentally hurt or damage someone else or their property.
This is where umbrella policies come in. Essentially, umbrella policies pick up where your traditional coverages leave off. In the event of a high-value lawsuit or claim against you, umbrella liability coverage will provide for legal defense and for payment of judgements made against you, your family, and your assets.
Of course, the specifics and details will vary significantly between policies, but a few common examples an umbrella policy would cover include:
- A teenage car accident where the cost of injuries to other drivers exceeds your auto liability limit
- A houseguest getting injured on your property and suing you for their medical bills plus pain and suffering that exceed your homeowner insurance liability limit
- Your dog attacks a neighbor going for a walk who sues you to cover her medical bills, lost wages, and pain and suffering.
Simply put, umbrella policies provide an extra layer of liability protection for your additional security.
If you don't have this coverage and something terrible happens (like a high-value lawsuit), then you may be on the hook if there are claims that exceed the liability limits of your home, rental, and auto policies. This would expose your assets to such potential damages, which can be devastating for anyone who's worked hard to accumulate them.
Are Umbrella Policies Expensive?
While umbrella policies can be expensive if you are a celebrity, they are rather inexpensive for the average citizen. According to the Insurance Information Institute, an umbrella policy with $1 million in coverage costs about $150 to $300 per year. The reason it is so affordable is because these policies only kick in when something goes terribly wrong. Umbrellas are unlikely to be used unless a high-value lawsuit or claim exceeds the insured's underlying coverage. With their high coverage limit, umbrella insurance generally offers a great value for the cost.
Protecting Your Future
Many people don’t look into umbrella policies because they assume they must be reserved for the ultra-wealthy. While this seems logical, it is not wholly valid. Even if you have yet to amass significant assets, you can benefit from these protections. The reality is that an accident today can lead to a judgment tomorrow. That judgment tomorrow? It could last for ten to twenty years or more depending on your jurisdiction and the nature of the claim. So even though you may not feel you have assets worth protecting today, an umbrella policy can protect your ability to accumulate and grow assets, as well.
Adding Protections to Your Financial Plan
Umbrella coverage is surprisingly inexpensive and tremendously valuable. If you are unfortunate enough to find yourself the subject of a liability claim that exceeds your underlying liability coverage, the umbrella policy is there to save the day. Without it, your personal assets and your future assets may be at risk. So regardless of your net worth, it may behoove you to take some time and make a call or two to consider putting this low-cost, high-value coverage in place. The amount of coverage that is right for you should be discussed with your insurance agent and/or your financial advisor who would be aware of the types of your risks.
At Gardey Financial Advisors, we don’t just help investors and their families make solid investment decisions, but advise them on protecting what they’ve built. If you find yourself in need of comprehensive wealth services, we invite you to take a tour of our website and learn more about our firm. Please visit www.gardey.com We best serve clients looking for exceptional client service and who value a long-term partnership and have a minimum of $500,000 in investable assets.
If this sounds like you, we encourage you to reach out to us and schedule a complimentary and confidential introductory call at 1-800-550-3880. Our professional staff has over 175 years of combined experience and would be happy to see if we can be of service to you, as well.
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