Umbrellas – They’re Not Just For Fruity Drinks

Do you have a Personal Umbrella Insurance Policy? Why not?

If you own a home or rental property, have money in the bank (whether in cash, retirement accounts or trust), or have a decent paying job (or will in the future), then you should consider getting the added peace of mind that an umbrella can afford – and speaking of afford, it is the least expensive insurance policy you’ll carry.

Umbrella insurance coverage can be very affordable

Most people realize these days that you can package your auto insurance with your homeowners/renters insurance and get a discount for that called a multi-line or multi-policy discount. The discounts vary from company to company but usually they are in the range of 15%. When you add an umbrella policy to the mix you can get an additional discount in most cases that makes the net-additional-cost really low.

Example:

Most umbrellas start in the range of $175-200 per year for the first million dollars of coverage. Say your combined auto and home insurance premium is $2,000 for the year. With an additional discount of 6% (using Travelers Insurance in this example) for adding the umbrella you save $120 off the premium of the auto/home policies. So if the cost of the umbrella is $200 for the year, when adding the multi-policy discount the net effect on your total rate is only an additional $80 for the year. Not bad when you consider you just doubled your coverage (in some cases tripled) for only $80 per year. It’s an insurance no-brainer in my opinion.

Of course these policies are underwritten and here are some of the primary factors that determine your premium:

1) The age of your children (think there’s an increased risk if you have a teenage driver in the household?)

2) Owning rental properties, boats or planes

3) Having a pool

4) Having an issue with your driving record

5) Being a “target risk” (celebrities or star athlete’s).

Even with some of these potential additional rating factors the umbrella policy will be inexpensive compared to the relative increase in your coverages.

I can think of a few examples of how an umbrella would be beneficial.

- I have a son who recently graduated from college. While he was there for the last 4 years he was using one of our cars. My son was in a fraternity. According to my son, his chosen fraternity wasn’t “fratty” like the rest of them were and none of the debauchery occurred at their house like the others. I’m not saying that isn’t true, but for my peace of mind, I knew that with an umbrella in place, I could relax somewhat knowing we had the extra coverage. What would have happened if he ever made the unwise decision to get behind the wheel to get some more beer cold beverages with his frat brothers and he accidentally hit a pedestrian while trying to rush through a light? Two days in ICU alone can cost more than $100,000.

- Say you’re driving to work on the freeway, obeying all traffic laws including not talking or texting while driving, and you do a lane change into a motorcyclist who snuck into your blind spot when you weren’t looking.

- You’re having a holiday party and one of your houseguests slips on some spilled ice and takes a hard tumble. At first they just have a small cut above their eyebrow which is easily stitched up, but then 2 weeks later their vision begins to blur and they might have something much more serious going on. What if that same person was medically uninsured? Who is going to pay?

- What if you’re blogging about somebody and you get sued for “defamation” or “reputational injury” because they didn’t like your unflattering remarks? These types of lawsuits are getting increasingly popular.

Will an umbrella keep you from being sued? No, there are never any guaranties that an overzealous person might still try to sue you for some astronomical sum, but having the extra coverage will give you the peace of mind that most accidents, even a catastrophic one will be taken care of with your umbrella.

A lot of my clients over the years have asked “how much coverage is enough?” and I always reply “$1 more than you’ll need.” In other words, there is no way to know for sure how much you’ll be sued for or how much coverage will be enough. You should work with your insurance agent to discuss your individual needs and purchase as much coverage as you can afford – and do it in a strategic way to maximize your savings through multi-policy discounts.

So this evening while you’re enjoying that fruity drink with the umbrella consider what an umbrella of a different kind can do to protect your financial future.

(Note – Umbrella policies require minimum requirements of underlying coverage; usually 250k/500k on your auto insurance policy, and $300k on your home insurance and rentals. This can add a small amount of premium to your policy if you aren’t already insured for that amount.)