Published April 19, 2016|3 min read
There's nothing worse than thinking you're fully protected by your current insurance, only to realize in a major claim or a lawsuit that you have to dig deeper into your pockets to cover additional expenses.That's why, although you may have never heard of it before, a personal umbrella policy might be one of the smartest financial decisions you can make this year.
Just as the name implies, an umbrella policy is a type of extra liability policy that you can add on top of your homeowners and auto policy very easily. It provides additional protection from major claims and lawsuits.There are many different types of extra liability insurance that you can get, like policies for freelancers and even wedding insurance, but an umbrella policy is a uniquely special type of insurance.An umbrella policy protects you in two ways:
Above your limits - An umbrella policy can pay for expenses that exceed what your current auto or home policies will pay in the event of major claims or lawsuits.
Excluded from your limits - An umbrella policy can pay for expenses related to claims that aren't covered by your current auto and home policies, like false arrest, libel, and slander.
Typically, umbrella policies come in increments of a million dollars up to five million dollars of coverage. Now, before you scream, "a million dollars?!," understand that a million-dollar policy is pretty inexpensive.Depending on your auto and home carrier, you can bundle all your services together and enjoy the savings that they offer you. Most find that adding an umbrella policy to their existing coverage is around $100-$200 a year, again depending on your carrier. That's less expensive than a night out with dinner and drinks.
In case you don't know, there are two critical numbers on your car insurance: bodily injury limit and property damage limit. If you don't know what these numbers are on your policy, now is the time to double check.Let's say you were in an automobile accident, and it was your fault. The person in the other car was severely injured and needed a lot of medical attention. When all was said and done, you were sued for the income loss to the other person as well as their medical bills and the trauma they suffered.One day you go to the mailbox, and you get a bill for over $1,000,000. Yikes! The bad news is that your car insurance policy's bodily injury limit is $250,000. Your insurance pays out the $250,000, and you're stuck with the rest of the bill.Unless you've got a hidden money tree, there aren't many places you can turn to and find a spare $750,000. This is when an umbrella policy can save the day by providing the extra funds you need to take care of the outstanding bill. That's not a bad deal for a couple of hundred dollars each year.
It doesn't just have to be a car accident either. Your dog could bite a neighbor, a house guest could injure herself, or a friend's child could slip and fall in your backyard while playing.An umbrella policy will work the same way for that other number I mentioned above, your property damage limit. If you damage someone else's property, an umbrella policy will step up and cover you over and above your homeowner's and car insurance.There are so many good reasons why you should incorporate an umbrella policy into your existing insurance coverage. It's one of the least expensive ways to leverage a large sum of money that can come in handy in a variety of situations. When you think about all the dreams and goals you want to achieve, it makes sense to incorporate this important piece of liability coverage into your financial plan.
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