On a rainy day, people break out their umbrellas to protect themselves from the negative and cold effects of being wet. An umbrella insurance policy is very similar. When it starts to pour and tragedy brings negative effects to you and your family, an umbrella insurance policy is designed to protect from the effects of turmoil.
When it starts to drizzle outside, an umbrella is not necessary, and even in a downpour, some people prefer to run through the storm head first or hold a newspaper over their head. Similarly, an umbrella policy if not a requirement. For a simple fender bender or hospital bill, the umbrella policy is not necessary and some people choose to chance the storms and go without one, but for some, it is comforting to have an umbrella in their pocket.
What Is Umbrella Insurance?
By definition, umbrella insurance is a liability-type policy that will protect the assets and future income of the policy holder above and beyond the standard limits on their primary policies. Just like an actual umbrella protects you better than a hood or a newspaper, the coverage of an umbrella policy is broader and more comprehensive than primary coverage.
What Does Umbrella Insurance Cover?
The biggest benefit to umbrella coverage is protection against lawsuits. In a sue-happy world, a lawsuit is only one falling branch, one dog bite, one loose step away from the typical suburban family. Getting sued at some point in your life is becoming more and more of a reality. Umbrella policies generally start in the $1 million range. While most people cannot imagine having over $1 million in lost damages and wages, most people have not been involved in a tumultuous legal battle. Even if your neighbor sues you over something small and seemingly ridiculous, you are obligated to pay the cost of defending yourself and your family. A simple lawsuit can devastate a family budget; a complicated lawsuit can bankrupt them.
Do You Need Umbrella Insurance?
Umbrella insurance is entirely an option of choice. While banks require homeowners insurance and states require auto insurance, nobody requires umbrella coverage. The typical $1 million umbrella policy will cost between $200 - $250 annually. While some people view this as a waste of money or “paranoia insurance”, those who have needed it consider it invaluable. When determining if an umbrella policy is right for you there are two points to consider:
1. Examine your own net worth. If your overall net worth is less than one million dollars, there is no point in paying for coverage beyond that.
2. Examine your daily risk. Does your job, hobbies, or your place of residence put you at any increased risk?
Generally, most single adults have little to no need for an umbrella policy, but once homeowners gain risky assets such as a pool, ongoing construction, children, or teenagers, the risk of everyday life accidents increases and it may be worth it to carry an umbrella rather than hold a newspaper over your head and hope for the best.