Life can have unexpected events. Insurance can help you prepare for expenses that may be associated with these. Umbrella insurance can protect individuals from financial loss in the event of unexpected events. This article will explain this type of insurance from a financial planning perspective.
What is an Umbrella Policy?
Umbrella insurance is a policy that provides coverage beyond the liability coverage provided by your basic auto or homeowners insurance policies. The Umbrella policy is “excess liability insurance” that kicks in when you are in a situation where coverage is needed for medical bills, repairs or other damages that are in excess of your regular insurance policies.
Here’s an example:
You are at fault for a car accident that results in severe injury to the passengers of the other car with medical bills of $500,000. Your auto insurance liability only covers up to $300,000, the policy limit. Umbrella insurance provides the difference of $200,000. If you don’t have an umbrella policy in place you could be sued for that $200,000 and that could come out of your savings or home equity.
What Does an Umbrella Policy Cover?
The umbrella policy provides liability coverage for bodily injury to others, property damage, the legal costs to defend you in lawsuits from accidents. It also provides protection beyond the homeowners policy from other lawsuits such as slander, libel, defamation, or invasion of privacy. Coverage usually applies anywhere in the world and can cover all the members of your family. Think of teenage drivers!
An umbrella policy does not cover damage to your property or your own injuries, you need separate insurance for that. It also will not cover the liability associated with a contract you enter into and, not surprisingly, won’t cover intentional or criminal acts.
How Expensive is an Umbrella Policy?
Umbrella policies are usually inexpensive policies to put in place. The starting cost can be between $200 to $600 annually for the first $1 Million in coverage. Pretty good bang for your buck. The amount of coverage needed will depend on your personal risk exposure and the value of assets that could be at risk.
You might want to consider using your same primary insurance provider for a seamless experience if you would need to use the umbrella policy. It depends on price and coverage, but you may want to avoid two separate insurance carriers, who end up squabbling over who covers what.
Most insurers require a minimum of $250,000 of liability coverage with your car’s insurance policy and $300,00 for your home, you may have to increase those policies to qualify for an umbrella policy.
Umbrella insurance is another important consideration as you plan for a financially secure future. It can protect you and your family from financial loss in the event of unexpected events. To discuss this topic and more, contact the Financial Planning team at Bedell Frazier Investment Counselling.