Watch Related Videos
comments
Personal umbrella insurance is the insurance that is designed to give you liability protection beyond the protection provided by your other insurance policies. While your existing policies will cover some liability costs, they usually come with caps that limit how much money they will spend for that purpose. Personal umbrella insurance will help you cover the difference. However, personal umbrella insurance is not for everyone - in fact, depending on your financial situation, it may make things more problematic on the long run.
Is Umbrella Insurance Right for You?
First and foremost, you need to determine whether taking personal umbrella insurance is in your best interests. Personal umbrella insurance can cover millions of dollars worth of legal costs, which can be something of a double-edged sword. If someone is looking to sue you, he or she may ask for larger settlement if he or she knows that your insurance will be able to pay it.
Even if you don't wind up in this situation, you have to keep in mind that, regardless of its benefits, personal umbrella insurance is another expense. Depending on how much money and other assets you have, you may not even need it, because your home and vehicle insurance are already doing an adequate job of covering your liability costs. If that's the case, spending any money on umbrella insurance is a wasteful endeavor.
Here is how you can find out if umbrella insurance is right for you:
- Add Up Your Assets – Add together the worth of your home, the money in the bank, stocks bonds and other assets and available funds from your 401(K) retirement plan and other savings.
- Look Up Your Liability Coverage – Take a look at your home insurance and your vehicle insurance policies and check their maximum liability coverage.
- Run Comparisons - Compare your total assets with the maximum liability coverage for each policy. If the former exceeds the later, you will need umbrella insurance.
What Umbrella Insurance Doesn’t Cover
Insurance companies frequently tout personal umbrella insurance as the universal coverage that will cover all liabilities. While personal umbrella insurance is indeed fairly generous about its coverage, it does have limits. There are several claims that most companies don't cover. This means that if you are successfully sued based on any of those claims, you will be stuck footing the bill in full. And since the possession of personal health insurance tends to increase liability costs, your bill may be larger than what you would have otherwise had.
The claims include:
- Punitive damages – damages that awarded to the plaintiff as a way to penalize the defendant (you) for doing something that is deliberately damaging to the plaintiff. Different states have different laws governing the way punitive damages work.
- Liability claims against your business – even if the business is run from inside your house, umbrella insurance wouldn’t cover it. Rather, this falls under business insurance, which has its own limits on how much money the insurance company will give.
- Personal claims against you – this includes claims of libel, slander, malicious persecution, and unlawful detention. While many companies will cover these claims under their policy, others will not.
Umbrella Insurance Costs
When deciding whether or not to get personal umbrella insurance, you should also understand the extent of the coverage and the expenses involved. While umbrella insurance policies offer fairly generous coverage, there is only so much the insurance companies are willing to give. There are policies that will cover five million dollars worth of liability costs, but most of them will cover $1 to 2 million dollars worth of liability costs. The premiums are usually $200 to $300 per year. This is frequently touted as proof that umbrella insurance is affordable. However, the low premiums are counterbalanced by much higher deductibles - in fact, they rarely go below $300,000.
