In today’s fast-paced world, where accidents and unexpected events can happen at any time, safeguarding your hard-earned assets is crucial. While most people are familiar with homeowners, auto and watercraft insurance that provide coverage for specific situations, like accidents at home, on the road or on the water, many people are not aware of the importance of umbrella insurance. This often-overlooked aspect of personal financial (and legal) planning can be a game-changer in protecting your financial future.
What Is Umbrella Insurance?
Umbrella insurance, also known as excess liability insurance, is an extra layer of protection that goes beyond the coverage provided by your homeowners, auto or watercraft insurance policies. It’s designed to protect you and members of your household when the costs related to an accident on your property or involving your vehicle or watercraft exceed the limits of your primary policies. It also covers the legal costs to defend you and members of your household in civil lawsuits unrelated to your home, vehicle or watercraft such as damage caused by a member of your household to someone else’s property, libelous online comments or lawsuits related to volunteering on a charitable board or as a coach. Depending on the policy, umbrella insurance may also cover injuring others or the property of others in high risk hobbies like jet skiing or downhill skiing.
Why Do You Need It?
- Protect Your Savings and Assets: Imagine a scenario where you or someone in your household is found liable for a car accident. If the resulting damages and legal fees surpass the limits of your auto policy, you could be personally responsible for covering the excess. This could put your savings, home, and other assets at risk.
- Legal Defense Costs: Even if you are not at fault, legal battles can be costly. Umbrella insurance gives you an additional layer of financial protection to cover legal defense costs. This ensures that you have the resources to fight for your rights.
- Peace of Mind: Life is unpredictable. Knowing that you have umbrella insurance can provide you with peace of mind, knowing that your financial future is safeguarded. You won’t have to worry about the “what ifs” keeping you up at night.
- Affordability: Umbrella insurance is surprisingly affordable given the significant protection it offers. It’s a cost-effective way to ensure your assets and financial well-being remain secure.
- Covering Gaps: Umbrella insurance not only extends the coverage limits of your existing policies but can also fill gaps in your insurance coverage. It can cover incidents that your other policies may not, such as slander, invasion of privacy or false arrest claims. In most instances, it also covers incidents that happen outside the United States.
How Does It Work?
Suppose you have an auto insurance policy with a liability limit of $250,000, and you have a $1 million umbrella policy. If you’re in an accident and found liable for $750,000 in damages, your auto insurance would cover the first $250,000 leaving you responsible for paying the remaining $500,000 judgment. That is where your umbrella insurance would kick in to cover the remaining $500,000, saving you from a potentially devastating financial burden.
What’s the Right Amount of Coverage?
The amount of umbrella coverage you need depends on various factors, including your assets, income, and potential risks. A general rule of thumb is to have enough coverage to protect your current net worth. However, if you anticipate that your income or assets will increase significantly in the short term that should be taken into consideration as you are calculating your coverage. Your insurance agent can help you determine the appropriate amount based on your specific situation.
Umbrella insurance is a safety net for your assets. It provides an extra layer of protection that can make all the difference when an accidents or unexpected event occurs. With its affordability and peace of mind, it’s a smart investment for anyone looking to secure their financial future.
Here at Mackenzie Hughes, we’ve seen the profound impact that umbrella insurance can have on our clients’ lives. It’s a simple step that can protect you from potentially life-altering financial consequences. Don’t wait until it’s too late to secure your assets and to protect you and your loved ones from what life may throw your way.