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With a question about umbrella coverage, your assets do not really apply. The question is more about what you need to protect yourself, your assets and your family. That has more to do with your exposure and risk of loss than how much you have to lose. When asked if anyone needs umbrella insurance in this scenario, the answer is really a “maybe.” It depends on your current insurance, the cost of additional coverage and the specific risks you are concerned about.
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Umbrella insurance is a secondary policy that takes effect after your primary insurance policy has been exhausted. It covers any losses or payouts that are outside the coverage of your primary insurance policy.
For example, let’s say you have a car insurance policy that covers up to $150,000 in liability and damage. You are presumed at fault for a car accident involving a driver who suffers $95,000 in damage to his car and $155,000 in personal injuries and lost wages.
Your insurance policy may pay the first $150,000 of this claim. Then an umbrella insurance policy could pay for the remaining $100,000 for which you would otherwise be personally liable.
The main reason to take out umbrella insurance is legal liability. In general, you can know in advance the value of your own property and assets, both personal and real estate. Knowing this, you can get insurance that covers most cases of personal loss.
Liability is another matter. It is impossible to predict with any certainty the value of a third party’s assets or injuries. One day you may be in a car accident or accidentally injure a guest at a party. Because accidents are impossible to predict, the costs and damage associated with them are also impossible to predict. This is where umbrella insurance comes in handy, as it covers you in the event of unpredictable liability that exceeds your policy’s coverage.
Most consumers who purchase umbrella insurance will use it to supplement auto or homeowners policies. You will normally need to have existing primary insurance as this will not act as your primary insurance. For homeowners, this can supplement the coverage you get based on your personal needs and mortgage requirements. For drivers, this can supplement the coverage you have based on your personal needs and your state’s minimum coverage laws. A financial advisor can help you assess and coordinate your current coverage.
As with all insurance, the specific costs of umbrella insurance vary based on your policy and coverage needs. However, in most cases, individual umbrella policies provide liability-oriented coverage. This means that your policy usually covers injury, damage and property losses to third parties. For homeowners, this coverage typically extends to general liability protection, such as if someone files a defamation suit.
This is why the need for umbrella insurance is typically unrelated to your personal assets. The reason for umbrella insurance is the risk of accident and loss, not necessarily collectible assets. Someone with $25,000 in cash is as likely to lose everything as someone with $1 million. The more money you have, the less you need umbrella coverage, as you can likely afford excess claims, although umbrella coverage can be pricey.
These policies typically do not protect your own assets and personal property because you are considered to be pricing out your own assets within your primary insurance policy. They also generally do not cover intentional or criminal acts, and often do not cover cases of contributory recklessness.
Because these are high-coverage policies, you typically purchase umbrella insurance in $1 million increments. While professionals such as doctors and lawyers typically enjoy liability protection through their workplace, someone with a higher public profile or who regularly invites people onto their property is at greater risk of lawsuits, and therefore might consider more protection. You can use this free tool to match with a financial advisor who can help you assess the right coverage for your circumstances.
Umbrella insurance is a policy that provides you with additional coverage beyond your basic homeowners or auto insurance. Most policies are built around liability, protecting you against third-party claims that exceed the limits of your policy.
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If you own your own home, the right homeowner’s policy can make a big difference. It can save you money and provide immense peace of mind, so shop wisely.
Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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