Umbrella insurance coverage is one of the most misunderstood insurance policies. I have been asked many questions over the years about umbrella insurance and here are the most common questions and answers.
If my car is not covered and it is stolen my umbrella policy will cover it? NO
Can I purchase the minimum insurance in the state and then purchase an umbrella policy to cover everything else? NO
Can I just purchase an umbrella policy to cover all my risk so I don’t have to purchase car insurance or home insurance? NO
So… what does an umbrella policy cover?
It is EXTRA LIABILITY over your assets, like your home, vehicles, boat, rental properties that are ABOVE the minimum liability coverage the insurance company sets.
Here is an example: You own 2 vehicles and all the licensed drivers in your household are listed on this policy. Then you purchase $250,000/ $500,000/ $100,000 coverage on your car insurance. The $250,000 represents one person in another vehicle that was injured by you. The $500,000 is for everyone the other vehicle, the maximum that the insurance company will pay for everyone injured in the other vehicle that is injured. The $100,000 is the property that you damage, like the other vehicle in a car accident or if you lose control and drive into a structure, like a home or business.
Why would someone purchase an umbrella policy? Because they have assets to protect. They own a home, a vehicle, have a job, have retirement savings, then you have assets. If you know your net worth, the calculation is easier. This is not exact, but a guideline.
$500,000 to $1.5M in assets = $1M umbrella needed
$1.5M to $2.5M in assets = $2M umbrella needed
$2.5M to $3.5M in assets = $3M umbrella needed
The coverage can go all the way to $5M for standard policies and beyond for higher net worth clients.
Insurance should be used to insulate your risk. If you are sued, the insurance company will fight on your behalf. The goal is to have the insurance company settle your claim within your policy limits. If you have low policy limits and there is severe loss, you have a high risk of being sued. PROTECT YOURSELF and YOUR FAMILY.
Just picture a HUGE umbrella over your cars, your motorcycle, your home, your rental properties and your retirement account. When there is a big storm which represents a lawsuit, if your umbrella is large enough, IT WILL COVER YOU IN THE STORM OF LIFE.