Understanding the Significance of Umbrella Insurance
Understanding the Significance of Umbrella Insurance
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Is Umbrella Insurance Worth It?

Have you heard of umbrella insurance, but aren’t sure what it is or if you need it? Umbrella insurance can be an optional safety net for some, and a must-have for others. It all depends on your financial situation, lifestyle, and risk profile.

Let’s start with defining umbrella insurance. Umbrella insurance is coverage that takes effect when you exceed the limits of your other individual insurance policies. We all have different insurance policies for different things: car insurance, homeowners insurance, flood insurance, life insurance. Each of these policies have their own limits. However, in the event of a major accident or disaster – especially any that lead to a lawsuit – you could owe significantly more than what your policy covers. No one wants to be on the line for such a potentially significant sum of money, especially when it means sacrificing other assets – like homes and retirement savings – to cover the cost.

That’s why umbrella insurance acts as backup insurance for the current insurance policies you hold. Umbrella insurance can cover physical damage and property damage, as well as the cost of lawsuits. In fact, that’s one the main reasons it’s recommended for certain individuals. Umbrella insurance can be used to pay for your legal defenses in a lawsuit and protects you from getting sued for damages that other policies don’t cover.

Because umbrella insurance protects against lawsuits, its coverage is high. In fact, it’s only sold in increments of $1 million dollars. For individual contributions, you can find coverage for about $150-$200 a year, with $100 additional for every $1 million added to a policy. Like any insurance policy, the exact amount you pay is based on the insurance company’s risk assessment.

Note that you need to maintain a relatively high amount of liability coverage on your existing policies to qualify for umbrella insurance. An insurance company needs to see that you will be responsible for an adequate amount of liability before granting full umbrella coverage.

Umbrella insurance does not cover worker’s compensation claims against employers, malpractice claims, damage caused by a business, or damage that was intentional.

So, who is the ideal candidate for umbrella insurance? Those with significant assets to protect. For example, if you have a million dollars in total wealth (including assets), umbrella insurance is a wise choice. The same goes for those that engage in activities that put them at a high risk of liability. Even something as simple as owning an in-ground pool and frequently hosting parties where guests could be at increased risk of injury is reason to purchase umbrella insurance.

If you’re not sure whether umbrella insurance is worth the cost, start by identifying your net worth. This is the value of all your assets, subtracted by how much debt you have. Then, take a look at your other types of insurance. How much coverage do these policies offer you? From there, subtract the lowest coverage number from your total net worth. The remainder represents money that would be unprotected in the event of an accident or lawsuit. If that amount is significant to your financial health, consider getting an umbrella policy for at least that amount.

To learn more about umbrella insurance and which type of umbrella insurance is right for you, reach out to the insurance professionals at Schechner Lifson Corporation. We specialize in helping each of our clients find insurance solutions that work best for them.