Why Everyone Needs an Umbrella Policy
Your financial plan should not only focus on accumulating assets, but also protecting current and future wealth.
What is an Excess Liability Policy – aka “Umbrella Insurance”?
Umbrella insurance is a type of personal liability insurance that covers the owner, their family, and/or household members in the event of a lawsuit that exceeds the existing homeowners or auto insurance coverage. For example, if a policyholder caused a car accident that included several other vehicles. Their auto insurance may only cover $500k in damage. What if the courts deemed that overall liability was $700k? An established umbrella insurance would kick in to cover the difference.
Umbrella coverage is insurance on your current and future financial plan by protecting your net worth.
What does Umbrella Insurance cover?
Umbrella insurance typically covers claims that involve personal liability, such as bodily injury or property damage caused by you or a member of your household. This can include claims from accidents, incidents on your property, or even defamation. Just a few examples:
Your dog gets loose and bites someone down the street. They sue you.
Your child causes a major car accident, you get sued as a result.
Your child gets into a fight and breaks someone’s nose. The parents sue you.
Someone gets injured on your property and they sue you.
Why Umbrella Insurance?
Some of these above-mentioned situations may not seem like something that’s likely to happen. Umbrella insurance is the last policy that an owner will submit a claim on, but it’s still important. If such a claim were to be made against your household, it can erase decades of savings, make people lose their home, etc.
Because there’s such a low probability of it being used, umbrella insurance tends to be very cost effective. The cost of the policy will vary based on the amount of coverage you want to purchase and your risk profile.
How Much Umbrella Insurance do I Need?
Many advisors refer to umbrella as the “insurance on your net worth.” A good rule of thumb is to purchase in increments of 1 million, up to your current net worth. Most insurers will not offer coverage above 5-10 million. As your family or net worth grows, you can always supplement by purchasing additional coverage.
DISCLOSURES:
No insurance strategy can guarantee results, or completely eliminate all risks. We encourage readers to meet with their financial advisor and insurance advisor to understand their specific risk areas and plan accordingly.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Consilio Wealth Advisors, LLC (“CWA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CWA and its representatives are properly licensed or exempt from licensure.
