Umbrella insurance

When you hear the term “umbrella insurance,” your first thought might be, “What do umbrellas have to do with insurance? Is this just another product the insurance industry is trying to sell me?” Actually, umbrella insurance has nothing to do with conventional umbrellas.

Umbrella insurance is “extra insurance,” like an umbrella is extra protection against the rain, even though you have a raincoat on. Think of your regular car and homeowners insurance as the raincoat, and the umbrella insurance as the “umbrella” you carry for torrential downpours.

Many people tell me they have liability coverage with their auto and home policies, so why would they want to buy more? A typical individual does in fact have liability coverage on their auto policy and their homeowners policy, usually between $100,000 and $300,000 in coverage. This is indeed a lot of money.

But imagine you are driving your car when it’s wet out and you don’t see a cyclist when you make a turn. You hit the cyclist, who sustains serious injuries. In this situation, you may owe for lost wages, medical bills, and pain and suffering. If this person is the CEO of a large corporation and can’t work for, say, five years, the wages alone might exceed $1,000,000. Medical bills, including physical and occupational therapy, could easily be another $1,000,000. You will have far exceeded the limits of your auto policy.

In situations where losses aren’t covered by your other policies, umbrella insurance can provide the following:

• Additional lawsuit coverage.
• Added coverage for defense costs.
• Liability coverage for some lawsuits not covered by your underlying auto or home insurance (for example, an accident involving a boat you rented on vacation, or a slander lawsuit).

You can also add an “uninsured or underinsured motorist” component to some policies, which can cover damages if you are injured by someone who has no insurance or not enough insurance. For example, you are out jogging and get hit by a car. The motorist’s insurance does not completely cover your medical costs. Your umbrella policy can step in at this point, with the uninsured motorist component, provided that the other motorist was at fault.

The good news is that this is one of the best buys in the insurance business. It typically costs only $150 to $200 per year for the first $1,000,000 in coverage, and then about $100 for each additional million.

Umbrella insurance can give you peace of mind and help protect against financial ruin. I recommend you pull out those policies, look over the amount of liability coverage you have and schedule an appointment with your financial advisor or insurance agent to see if your coverage has kept pace with your assets and needs.

This article was written by retired Merriman Wealth Advisor, Cheryl Curran.