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I have reached a net worth of $1 million

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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.

Do you have questions about financial planning? Talk to a financial advisor today.

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.

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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.

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