Friday, July 16, 2010

Is It Raining? Do I Really Need An Umbrella?

With it being July you probably are not thinking too much about your umbrella that is in the back of the closet or someplace in your car. Once the first showers start though, you will probably dig through the closet or open the glove box and dig it out, preferably before you are soaked.

The same goes for an umbrella policy. You think you don't need the additional insurance because your homeowners / auto / renters / landlords policy already gives me liability coverage. I'm protected. It's summer, it won't rain.

Perhaps you are right. All will be dry, if you have a claim your policy might have enough liability coverage to take care of you.

All the sudden, the first real storm clouds show up. You are in a bad car accident or a guest at your home was seriously injured when they fell and they are coming after you for medical bills and loss of income. Is there enough liability coverage on your homeowners insurance to cover you? Are you sure?

Umbrella policies are liability policies that sit on top of your other policies like homeowners, auto, etc. and provide additional liability if the limits of a policy are exceeded.

Lets say the guest that fell at your home is suing you for $800,000 for lost wages and medical bills. Your homeowners insurance has $300,000 liability coverage. If they win in court, you now have a judgment of $800,000 you have to pay. Your homeowners insurance will only pay $300,000. You would have to come up with the remaining $500,000 out of your own pocket. 

Now lets say you have a $1 million umbrella policy. The injured guest wins and you have an $800,000 judgment against you. Your homeowners will pay $300,000. Your umbrella policy drops down and covers the remaining $500,000.  The judgment is paid.

You have paid out of your pocket your deductibles and legal fees. The insurance company has taken care of the rest. You can get on with your life with out having to take out a second mortgage or have your wages garnished for years to pay off this judgment.

Neat.

You may be wondering what the cost for such coverage is. While the cost does vary from carrier to carrier, in many cases the cost of a million or two million dollar umbrella policy is less than $500.00 a year. Think about that. You can have access to a million dollars for less than 500 dollars a year. Why so cheap? Because an umbrella policy is only for liability. It does not cover any structures, property damage, loss of use, etc. The coverage is only activated if you exceed the coverage limit on an underlying policy, like homeowners insurance.

What's even better is that it can provide this protection for all of your policies. Your home, auto, landlords, RV and other policies all would enjoy this same additional protection.

If you own a business this same protection may be available to you under a commercial umbrella policy.

It can't hurt to locate your umbrella now and have it ready for a rainy day. Thunderstorms happen even in summer.

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