Umbrella Insurance: What is it and Why is it Important?

In building wealth, a topic that many don’t spend enough time on is learning how to protect the very wealth they are creating. Weather forecasts are looked on to let all of us know when rainy days are moving in. During times like these, most people grab an umbrella before heading out for the day. These same sensibilities apply around managing life’s financial uncertainties.  

While most people have car and home insurance, a question to ask is whether a person also has the insurance protection they may need if they themselves or someone in their household caused a major accident or someone was severely injured in their home or car?

In situations like these, when a liability policy exceeds the policy limit, it can, at times, lead to large financial expenses and devastating lawsuits.  If this happens, a person can find themselves perhaps being responsible for paying the difference out of their own pockets. That's why it’s important for more people to become better educated on how an umbrella insurance policy works and how it can protect people when the unexpected happens.   

Umbrella insurance offers additional liability coverage that goes beyond the limits of an existing car and home insurance policy by providing an extra layer of protection in case of a catastrophic event or high-value lawsuit.  

The typical liability insurance policy covers expenses for injuries or property damage to others that a person is legally responsible for. In these cases, if someone causes a major accident or injures someone resulting in significant medical costs, or has a lawsuit filed in relation to a covered claim, the standard car and home insurance policy with a limited level of liability coverage may not be sufficient. What is unique about umbrella insurance is that it provides an extra layer of protection for major events and lawsuits and is designed to cover costs that exceed the limits of other insurance policies, protecting a person’s assets and future income.  

If a person reads through typical insurance policy provisions, standard insurance policies have predefined coverage limits. If a person has a claim that exceeds these limits, they may face significant out-of-pocket financial expenses. Umbrella insurance serves the purpose of bridging these gaps by providing additional coverage beyond what primary policies offer, helping to make sure a person doesn’t have to drain savings and retirement funds or are forced to liquidate assets to settle a claim. 

These are some common situations:

Accidents at home. Homeowners face various risks, including accidents on their property, injuries to guests, or property damage caused by negligence. If a guest or visitor is injured on someone’s property, they may be held liable for medical expenses and other damages. 

Children’s activities. Families with children are exposed to various liability risks. Accidents can happen. If a child causes injury to another person or damages someone's property, the family may be held responsible.  

Inexperienced drivers. If a family has a teenage driver, they likely already understand the risks each time that teen backs out of the driveway. Inexperienced drivers have a higher risk of a car accident. If that accident causes damage to multiple cars or property and results in significant injuries, a person could quickly exceed the liability limits in their auto insurance. Accidents can happen at any time, and it only takes one bad decision or driving mistake to lead to an event that could jeopardize a person’s financial security.  

High-net-worth individuals. High-net-worth individuals often become targets for lawsuits. An umbrella insurance policy could provide extra protection for those individuals to help protect against legal judgments and costs associated with lawsuits.

Landlords. If a person owns rental properties, they might face liability risks associated with accidents or injuries that happen at these rentals. Umbrella insurance can offer additional liability coverage beyond the limits provided in a landlord insurance policy, safeguarding rental income and assets. 

Umbrella insurance is remarkably affordable considering the level of coverage it provides. Compared to increasing the limits on individual policies, opting for umbrella insurance offers a cost-effective solution. With an umbrella policy, many can secure a million dollars in coverage, often for just a few hundred dollars a year, depending on specific needs and the level of risk involved.

So, while we all want to think about our financial future with expectations of sunny skies, learning about the benefits of umbrella insurance is as common sense as checking the five-day forecast and planning accordingly before heading out and greeting the day.  

Gabrielle Zenner, Multi-Line Insurance Agent

COUNTRY Financial
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