Responsible financial planning should include asking some “what if” questions. For example, what would happen if you or someone in your family were involved in an accident for which you were held legally liable?
A $1 million or higher legal judgment could lead to financial ruin for many families — and affluent families with a large net worth are at particular risk. In today’s litigious society, it’s smart to guard against this kind of financial catastrophe by purchasing a personal liability umbrella policy.
What does it cover?
This policy type provides liability coverage above the limits of other policies, like homeowners and car insurance. For example, it would kick in if you or a family member were sued after causing a car accident, or if you were found liable for injuries suffered by a visitor while on your property. It also may provide coverage if you or a family member is sued for libel or slander.
If you believe your homeowners or automobile policy includes sufficient liability coverage, think again. Few of these policies provide $1 million or more of coverage, and legal judgments today can easily reach this level or higher.
Umbrella insurance policies are relatively inexpensive. You should generally expect to pay around $500 per year for each $1 million worth of coverage you buy. How much coverage do you need? One rule of thumb is that your coverage amount should roughly equal your family’s net worth.
How is it sold?
Umbrella insurance is usually sold along with other policies, like homeowners and automobile insurance. In fact, most insurance companies don’t sell it on its own. The umbrella policy will kick in if you face a judgment that exceeds the liability limits on those other policies.
So, talk first to your homeowners or automobile insurance agent. He or she can help you determine the right level of coverage and suggest the best umbrella policy to meet your needs.