4-May-2017

Why

 

There are a variety of insurances that cover you and your belongings. Vehicle insurance, life insurance, and house insurance, are just some examples. While each of these insurances is enough coverage in themselves, you might consider needing an extra protection just in case the damage exceeds the covered amount. An Umbrella Insurance is an extra liability insurance. It is designed to help protect you from major claims and lawsuits and as a result it helps protect your assets and your future. In simple terms, if your house catches fire and you are covered for $20,000 with your property insurance, but if the loss exceeds $20,000, you lose out on the amount above your coverage. At this point, the umbrella insurance kicks in and covers the extra losses, which might just not be related to your property, but also life and other medical coverage.

Parameters to consider

Umbrella insurance coverage should be chosen based on three parameters: The risks you face, the value of assets, and your current policy coverage. The ideal coverage amount would be adding all your assets and subtracting the value of all of your debts. Thereafter, comparing it with the liability coverage that you have on your individual insurances and determining if your coverage is enough to protect you from being sued or to cover your total risk. The right umbrella amount depends on where you live, your profession and your aversion to risk. Liability coverage in home and auto policies rarely exceeds $500,000, yet 13% of personal injury liability awards and settlements are $1 million or more, according to the report, citing data from Jury Verdict Research.

Brian Mittman, an attorney in White Plains, N.Y., says the reality is that anyone can be sued for anything at any time, though it’s less likely that juries will side with a plaintiff where there’s no obvious fault on the homeowner’s part.

Umbrella Insurance Graph.
Graphic created by Shreya Saha.

The Umbrella of Insurance

Umbrella insurances are for various levels of risk and hence the premiums vary greatly. However, it should be noted that umbrella insurance is not just for the wealthy. Umbrella insurance is very important for everyone given that individual insurances do not provide a thorough “umbrella” of coverage. After all, you can’t control who you injure accidentally. For instance, when a visitor to your home or property is accidentally injured, you may have insurance for that home or property that will cover some of the medical bills, but not entirely. However, if you have an umbrella insurance, it will not only cover the medical bills, but will also pay for your legal defense if the amount exceeds the individual insurance coverage.

What are you getting?

“As long as you can earn a livelihood, you should have an umbrella liability policy, “says Mitch Freedman, a CPA and personal financial specialist in Westlake Village, Cal. The gamut of umbrella insurance does not limit the coverage area like auto or property insurance, but also adds an extra layer of liability protection above your policies. Hence, the small amount you pay for umbrella coverage will provide you a great deal of relief in difficult times. What can be better than knowing that you are entirely insured and your assets are safe? So consider getting an umbrella insurance. You never know when it might rain in your life.

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