If you could pay $200 today to protect yourself against a $1 million lawsuit in the future, would you do it? Of course, you would. That is exactly what umbrella insurance can do–protect your assets and income against a major liability if you are directly or indirectly responsible for an accident that results in property damages, injuries, or other losses for a victim. In fact, umbrella insurance is perhaps one of the greatest insurance values you can add to your coverage portfolio. Despite its potential benefits, supplemental liability insurance is reportedly the most under-purchased coverage in the U.S.
How an Umbrella Insurance Can Preserve Your Future
What would you have to lose in a lawsuit? In today’s litigious society, anybody can be sued, and financial damages can be devastating. It is not uncommon for judgments to reach hundreds of thousands and sometimes millions of dollars – money you probably do not care to pay out of pocket. Yet that is exactly what could happen if your liability insurance falls short of covering your liability.
Consider, for example, a person with high-limit auto and homeowners insurance. She assumes she is well-protected against potential accidents until her teen son accidentally hits a cyclist while driving home from school. The cyclist is permanently disabled and wins a lawsuit with a judgment of $1.25 million. With individual bodily injury liability limits of $250,000, there is still $1 million to be paid once the auto insurance reaches its limits.
A court orders the teen’s parent to liquidate personal savings and investment accounts, as well as make additional payments from future wages to help satisfy the debt. In an instant, the teen’s parents lose their plans to retire early and are no longer able to pay for their child’s college education. Had they purchased an umbrella insurance policy – usually starting at around $200 or less for $1 million in protection – the lawsuit would not have derailed their plans for the future.
What to Look for in Supplemental Liability Insurance
It is important to make sure you are purchasing a true umbrella policy – not just excess liability protection. A true umbrella policy will not only offer you extended liability limits (usually ranging between $1 million and $5 million), but it also typically includes coverages that may be excluded from your home and auto policies. Examples include liability protection for accidental damages you cause when traveling abroad, as well as coverage for libel, slander, and false arrest. If you purchase excess liability protection that is not part of an umbrella policy, the coverage is typically more restrictive and fails to fill in the gaps left behind by your primary insurance policies.
Since umbrella insurance is secondary to your home and auto insurance, most insurers require you to carry a minimum amount of coverage on those policies:
- $300,000 or $500,000 homeowners liability
- $250,000/$500,000 auto bodily injury liability OR
- $300,000 combined single limit (CSL)
Do You Need Umbrella Insurance?
Here at Pentagon Insurance, we can help you determine if umbrella insurance may be right for you. We can help you analyze how much protection you might need based on your current net worth, your future earning ability, any inheritance you expect to receive, and your elevated risk factors for being sued, which might include:
- Owning a dog
- Driving a long commute
- Hosting guests or parties in your home
- Owning a swimming pool or trampoline
- Owning a rental property
For more information or to request your free quotes, contact us today.
Do you have excess liability coverage beyond your primary insurance limits?
Thom Grubbs is an insurance agent and partner at Pentagon Insurance Agency in Elk River, MN. Outside of work, Thom likes to bowl, fish, spend time with his family, and volunteer at his church. Get in touch with Thom and let him make life a little easier by talking over your situation.
