It’s no secret that we live in a litigious society. And though our right to a fair trial is one of the hallmarks of American democracy, it has also led to a lawsuit-crazy culture.
In this atmosphere, you’re at near-constant risk for costly lawsuits, many times even when you’ve done nothing wrong. This is especially true if you have substantial wealth, but even those with relatively few assets can find themselves in court.
If you’re sued, your traditional homeowner’s and/or auto insurance will likely offer you some liability coverage, but those policies only protect you up to certain limits before they max out. Given this, you should consider adding an extra layer of protection by investing in personal liability umbrella insurance.
What is umbrella insurance?
Umbrella insurance offers a secondary level of protection against lawsuits above and beyond what’s covered by your homeowners, auto, watercraft, and/or other personal insurance policies. For instance, if someone is injured in your home, they might sue you for their medical bills and lost wages.
Your homeowner's insurance will cover you up to a certain dollar amount, but you’re personally liable for anything beyond that limit. This is where umbrella insurance kicks in.
Once your underlying insurance maxes out, the umbrella policy will help pay for the resulting damages and legal expenses if you lose the case. If you win, it can help cover your lawyer’s fees.
Who should purchase it?
Umbrella insurance is particularly important for those with a high net worth. But seeing that everyone has the potential to be sued, it’s a good idea even for those without substantial assets.
Indeed, if you’re sued and lose, the judgment against you may exceed the value of your current assets. In such a case, the court can allow the plaintiff to go after your future earnings, potentially garnishing your wages for years. To this end, umbrella insurance not only protects your current assets, but your future ones as well.
How much coverage do I need?
Most people will be adequately covered with a $1 million umbrella policy. If you earn more than $100,000 a year or have more than $1 million in assets, you may want to invest in additional coverage.
A good rule of thumb is to buy an umbrella policy with coverage limits that are at least equal to your net worth.
How much does umbrella insurance cost?
Umbrella insurance is fairly inexpensive. You can buy a $1 million umbrella liability policy for between $150 and $300 per year. An additional million in coverage will run you about $100, and roughly $50 for every million beyond that.
Umbrella policies are inexpensive because they only go into effect after your underlying homeowners or auto policy is exhausted. In light of this, most insurers require you to have at least $250,000 in liability on your auto policy and $300,000 on your homeowners before they’ll sell you a $1 million umbrella policy.
How can I purchase umbrella insurance?
You can buy an umbrella policy from the same insurance company you use for your other policies. In fact, some companies require you to purchase all of your policies from them in order to obtain umbrella coverage.
If your current insurance agent offers umbrella coverage, you may qualify for a discount for bundling all of your policies. Of course, you can also purchase a stand-alone umbrella policy, so shop around for the best rates.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That is why we offer a Family Wealth Planning Session, during which you will get more financially organized than you have ever been before and make all the best choices for the people you love. You can begin by contacting our office today to schedule a planning session and mention this article to find out how to get this $750 session at no charge.
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