Do You Require An Umbrella Policy?

Columbia New Home Buyer Team
Published on October 16, 2015

Do You Require An Umbrella Policy?

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It all comes down to you and your assets when deciding whether or not you need an umbrella insurance policy. Homeowners insurance and auto insurance are two types of insurance almost everybody needs in the modern world we live in today. However an umbrella policy is something that you decide on. Nobody will try to force you into buying an umbrella policy so here is some good advice on how to decide whether or not you should purchase an umbrella policy.

What exactly is an umbrella policy?

An umbrella policy is specifically designed to provide the buyer with some extra liability coverage. This goes way beyond the coverage limits set on any existing auto, rent or home policies. Basically and umbrella policy is put in place to protect your assets from any major claims or lawsuits resulting from an incident on your property or an accident you cause in which someone is injured. Assets protected include any investments, your retirement fund, future earnings, your savings and of course your home. An umbrella insurance policy will also protect you in any slander or libel lawsuits.

How does the umbrella insurance policy actually work?

The umbrella policy will be triggered after the liability of an existing insurance policy has finally been exhausted. In other words, if there is somebody injured on your property and they require some extreme medical attention which exceeds the maximum limit set on your homeowners policy, the umbrella policy will take care of everything. This is because it will cover the rest of the expenses required after you exceed the limits of your original homeowners policy. Due to the fact that umbrella policies are only actually exercised after the liability limits of an existing policy has been exceeded, the majority of carriers have some requirements which need to be achieved before you become eligible to buy the coverage.

For example the large majority of providers will require that you carry around $300,000 in liability on your original homeowners insurance policy along with $250,000 of liability on your auto insurance policy. If you meet these requirements then you will be eligible for the extra $2 million in umbrella coverage.

You should expect the cost of umbrella coverage to be around $150 – $300 per year for your umbrella coverage of $1 million. Umbrella coverage is typically sold in $1 million increments and usually the maximum coverage is $5 million. Your second $1 million will cost an extra $75 every year and it is an additional $50 each year for every $1 million you purchase after that.

Who is best suited for investing in umbrella insurance?

It is a good idea for any homeowner who has a retirement fund to invest in an umbrella policy. However most people should also seriously consider it. It is crucial to bear in mind that you probably have a lot more to lose than you may initially assume. You have to take into account your savings, your home, any future earnings and investments are at a huge risk if you are sued for a lot of money. Many small business owners purchase an umbrella policy and it has proven to be a very wise decision. If you have a swimming pool or trampoline then you should take out an umbrella policy as injuries can easily be caused with them. If you are someone who likes to blog a lot and post on social media then you should consider the policy as you could be sued for slander or libel when talking about controversial topics.

At the end of the day if you take part in any activities or own any possessions which increase your liability risks then it is a very smart decision to purchase an umbrella insurance policy to stay protected in the future. If you cause an accident due to drink driving for example, your auto insurance liability would exceed the limits and you would need to cover the rest of any medical expenses by yourself. Any injuries or deaths caused in your home would also leave you emptying your savings accounts and retirement funds in order to cover funeral costs and medical treatment.

If you want to protect your assets then it is highly recommended that you invest in an umbrella policy to ensure your own protection. When you put everything in to perspective, the cost of an umbrella policy is incredibly cheap compared to the cost of a tragedy.

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Do You Require An Umbrella Policy?
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