What is umbrella insurance? Do I need a policy?
What is umbrella insurance? Do I need a policy?
Imagine that you are only a few years away from a well-deserved retirement. You have a sizeable retirement account, plus a house and car that are fully paid off. In total, his assets from him amount to just over a million dollars. In short, life is pretty good.
Then one day, you get into a car accident. Fortunately, you are not seriously injured and the damage to your car is within the limits of your auto insurance coverage. Unfortunately, the other car involved in the crash is full of executives from a large company, and their injuries and the damage to the car are much more serious.
This could be a complete disaster for you unless you have general insurance. This type of insurance takes over when your other policies are against their coverage limits. In this case, a blanket policy would cover the extra $750,000 in damages and even pay your legal bills, saving you from having your assets wiped out and your retirement wiped out by a single unfortunate accident.
How umbrella insurance works
Most types of insurance provide a specific type of coverage. For example, your auto insurance policy protects you in the event of a car accident, while your homeowner’s policy covers your home and the belongings in it against theft or damage. By contrast, umbrella insurance is a single policy that covers most aspects of your financial life, just like an umbrella covers every part of your body in a storm. So, whenever you go over the liability limits on one of your other insurance policies, your umbrella policy is there to take care of the extra costs.
Umbrella insurance is a type of liability insurance, which means its job is to protect you against lawsuits. With most auto insurance policies, the maximum amount of liability coverage you can buy is $300,000 or $500,000 per accident, but damages in a lawsuit can easily add up to millions of dollars. Having a blanket policy prevents a massive lawsuit from wiping out all your other assets. In addition, a comprehensive policy protects you against being sued for damages that other policies don’t cover, such as an accident you cause at work or on vacation.
What does an umbrella cover?
The types of damage covered by an umbrella policy include the following:
- Body Injury. If you hurt someone in a car accident and the medical bills exceed your auto insurance limits, a blanket policy picks up the tab. Similarly, if the electrician slips and falls down the stairs while leaving your house, the policy covers all medical bills beyond your homeowner’s policy limits. You are also covered for types of injuries that other insurance does not cover. For example, if your dog bites someone while you’re out for a walk, homeowners insurance won’t cover the damage, but general insurance will.
- Property Damage If your teen drives the family car through a fence and into the side of your neighbor’s house, a general insurance policy can pay for any damage beyond your auto insurance limits. The policy also covers damage that is not included in auto and homeowners policies. If your pet grabs a priceless painting at a neighbor’s house, or your child knocks over an antique crystal vase, or if you rent a boat on vacation and accidentally crash it into a dock, an umbrella policy can take care of the damage. .
- Other types of legal damages. A general insurance policy protects you if you are sued for libel or slander, written or spoken words that cause injury to another person. It can also protect you against lawsuits for false arrest, malicious prosecution, breach of privacy, and a variety of other civil charges.
- Legal fees.A final benefit of general insurance is that it takes care of your legal fees and court costs in a lawsuit. Lawyers are expensive, and the cost of a major lawsuit could force you out of court, even if you know you’re not really at fault. With a comprehensive policy, you know you can afford a good lawyer to protect your assets.
What umbrella insurance does not cover
Although umbrella insurance protects you against most types of lawsuits, there are certain types that many policies specifically exclude. For example, many umbrella policies do not cover:
- negligence lawsuits
- Workers’ Compensation Claims Against Employers
- Damage caused by a business or by any activity related to the business
- Intentionally causing harm to any person or property
Also, it’s important to note that general insurance only protects you from being sued for damages to other people. If you’re the one who gets hurt and needs an expensive operation, it’s up to your health insurer to pay for it, and anything your health insurance doesn’t cover will come out of pocket. In that case, a general insurance policy cannot help you. How Much Umbrella Insurance
What does umbrella insurance cost?
General insurance policies are typically sold in units of $1 million in coverage. That is, the smallest possible policy is $1 million, the next smallest is $2 million, and coverage continues to increase in $1 million increments from there.
According to Bankrate, umbrella insurance is “the absolute best buy in the insurance business,” at around $150 or $200 per year for the first $1 million in coverage and another $100 for every additional million. However, actual insurance company websites give slightly higher estimates of the cost: Farmers Insurance says a general insurance policy costs “about $250 to $600 per year,” GEICO puts the cost at “less than $300 for $1 million coverage” and Liberty Mutual says A $1 million policy costs “about a dollar a day” or $365 a year.
These figures are only estimates, however. The actual cost varies depending on where you live and how good of a risk the insurance company thinks you are.
Here are some factors that could affect the amount you pay:
- Your job People in some lines of work are more likely to have accidents that cause harm to others. For example, if your job involves a lot of driving, you are at greater risk of being involved in a car accident.
- Your hobbies If you own a boat, motorcycle, or any other type of specialty vehicle, that increases the number of ways you can get into an accident.
- Your Pets Pets, especially dogs, can be responsible for both injuries and property damage. Owning a dog, especially a breed that is considered aggressive, will surely make your policy more expensive.
- Your driving record. If you have been involved in an accident in the last five years, you will likely pay a premium as a result. Also, if a driver in your household is under 25 years of age, even if his driving record is impeccable, that increases his risk and therefore his premium.
- Previous lawsuits. If you’ve ever been involved in any type of lawsuit, civil or criminal, that suggests you’re someone at risk of being sued, your policy is likely to be more expensive than someone without a similar history.
The best way to get an exact price on a general insurance policy is to contact the insurance company directly. Many companies can give you a quote over the phone or by email.
Keep in mind that in many cases, you can’t get a global policy unless you already have dollar liability coverage for your auto and homeowners insurance. For example, GEICO only writes general insurance policies for customers who are covered for at least $300,000 of bodily injury and $100,000 of property damage in their auto insurance, plus at least $300,000 in coverage. personal liability on your homeowner’s insurance.
Who needs umbrella insurance?
Since the goal of general insurance is to protect your assets from a lawsuit, it only makes sense to buy it if you have assets to protect. Farmers Insurance recommends purchasing a general insurance policy if your net worth is at least $1 million, the minimum amount covered by most general policies. Other insurers use a slightly broader standard: They say that umbrella insurance is a good investment for anyone who has more assets than they do in auto and homeowners insurance liability coverage. For example, if you have $700,000 in assets and your auto insurance only covers you for $300,000 per accident, a general insurance policy protects the rest of your assets.
The other factor to consider is how likely you are to get sued. For example, if you spend a lot of time on the road, you are more likely to be in a car accident, which means you are more likely to be sued. If you often have guests at your home, there is a higher risk that one of them will be injured there. Having a swimming pool, a dog or a gun in your home increases the risk of accidents that could lead to a lawsuit.
If you think a general insurance policy is for you, the next question is how much coverage do you need? To find out, follow these steps:
- Calculate your net worth. Add up the value of all your assets: your home, cash in the bank, stocks and bonds, retirement accounts, and anything else of financial value, and subtract the value of your debts.
- Find out how much liability coverage you already have from your existing insurance policies. On your auto insurance policy, there are three separate numbers to keep in mind: bodily injury per person and per accident, and property damage per accident. On your homeowner’s insurance policy, there is only one number: personal liability per occurrence.
- Take the smallest number you found in step two and subtract it from the number you found in step one. The difference is the amount of money you have without protection. Getting a blanket policy for at least this amount gives you full protection.
For most people, a basic policy of $1 million is enough. However, Bankrate recommends increasing your coverage to “$1 million more than you think you’ll need.” You can’t go back and increase your coverage once you’re in the middle of a lawsuit, so it’s better to have too much or too little.
Like an umbrella on a sunny day, a general insurance policy is something you don’t expect to use. But, also like an umbrella, it is much better to have it and not need it than to need it and not have it. For just a few hundred dollars a year, you can ensure that your assets aren’t drenched in unexpected demand and that you won’t have to liquidate precious assets, like your retirement fund or a college savings fund, to save yourself. same. out.