• How to Know if Umbrella Insurance Right for You?

    There are a number of reasons that many people decide to include umbrella insurance as part of their total package of insurance coverage. These days the financial consequences of an accident can be severe. When buying auto insurance, many people choose to purchase a policy with liability limits of $250,000 or even $500,000. However, settlements for severe car accidents can reach into the millions of dollars. That’s the biggest reason that average consumers may want to consider supplementing their coverage with umbrella insurance in order to protect assets like their homes, future earnings and other investments.

    Umbrella insurance is also frequently called “Personal Liability Insurance.” It gets its name because it protects the policyholder from liability claims that go above and beyond all the policies underneath it. For example, if you currently hold a traditional auto insurance plan where the insurance company’s limit of liability is $500,000 and you add an umbrella plan that covers up to $1,000,000, this effectively extends your insurance protection to $1,500,000. The traditional auto insurance plan you already have is considered “primary.”  That means that if you have a large claim, that policy’s coverage pays out first. An umbrella plan is “secondary” which means that this policy comes into affect only when it’s needed if the customer is found liable for an amount above and beyond their primary coverage. Because an umbrella plan is meant to be used in only in conjunction with a traditional insurance policy. It provides almost no protection on its own because it almost always has a very high deductible (usually $300,000 or more).

    In the past, many people didn’t invest in umbrella policies because it didn’t seem like something they would ever need. It is true that a claim exceeding the limits on your traditional policy isn’t very likely, so you will probably never use an umbrella plan. However if you do end up needing it and you don’t have it, you’ll probably wish you had planned ahead. A great incentive to consider umbrella coverage is that because umbrella policies are rarely used, insurers don’t assign an especially large premium for the coverage. An umbrella policy may not add very much to your current premium. In most cases, an umbrella plan will only add around 10% or less to your current plan. The cost of the policy depends on a few things; like how many traffic tickets you’ve had in the past few years, or possibly your credit rating. An umbrella insurance plan is usually sold in increments of $1,000,000, but you can select the coverage that suits you best up to $5,000,000 or more. For the typical consumer, the premiums are usually between $200 and $300 per year for each $1,000,000 worth of coverage. That means for coverage of $2,000,000 you should expect to spend about $400 to $600 annually.

    One of the biggest benefits of purchasing an umbrella plan is that it also covers your personal liability in other areas as well. For example, it will extend the same limit of coverage onto your homeowner’s insurance policy. If something were to happen on your property and you were found liable, the same umbrella coverage will be in effect for that situation that you use when driving your car.

    On the whole, an umbrella policy is a great idea for anyone who owns a home or has significant assets to protect. However, it’s really something everyone should weigh carefully. Although you may not have a home or retirement account to protect now, an umbrella could end up being protection for your future. People that are found to be liable for large claims they can’t pay are usually subject to garnishment of their future earnings. Such a claim could haunt you for a long time if you don’t have sufficient insurance to cover it, and an umbrella policy could prevent such a situation.