Bad things happen to well-intentioned people. That’s why we have insurance. The question is: Are your current liability coverage types and limits enough to protect you against a major lawsuit?
Financial liability laws in many states allow a victim to pursue you for damages more than that which is covered by your home, auto, or other liability coverage.
If your insurance falls short of your liability, how will you pay for the damages? Continue reading to learn why umbrella insurance is so important and how it could protect you against a major financial loss.
How Umbrella Insurance Works
Umbrella insurance is high-limit secondary insurance that supplements the liability insurance you already have. It picks up where your home or auto insurance leaves off once the limits on those policies have been exhausted. For example, imagine being sued for $800,000 in total bodily injuries damages after causing a collision. If your auto insurance only covers $500,000 in bodily injuries per accident, you could be responsible for paying $300,000 out of your pocket. If you had umbrella insurance, you would generally be covered for at least another $1 million beyond the limits on your primary coverage.
Be aware that umbrella insurance carriers may require you to carry a minimum amount of primary liability coverage before issuing a policy. These usually include:
- $300,000 or $500,000 homeowners liability
- $250,000/$500,000 auto bodily injury liability OR
- $300,000 combined single limit (CSL)
Do You Need Umbrella Insurance?
There are several reasons why some people choose to forego umbrella insurance. Perhaps you assume you are not at risk of being sued for a major liability, or maybe you assume that the limits on your existing policies are enough to protect the value of the assets you own. Both of these assumptions could be mistakes.
First, lawsuits can happen to anyone, especially in today’s litigious society. If you drive a car, you are vulnerable to liability every time you crank up the engine. If you own a home, all it takes is one big storm to blow a tree over onto your neighbor’s roof, injuring someone inside. Certain factors increase your risk even more, such as:
- Owning a dog
- Having a swimming pool
- Owning a rental property
- Having a teen driver
- Having a long commute
If you are sued, you will probably incur thousands of dollars in legal fees. If the victim wins a judgment against you, the medical bills, lost wages, property damages, and other expenses could add up to hundreds of thousands or even millions of dollars. Once your insurance pays to its limits, you might have to liquidate your savings and investments to pay for remaining damages. If you do not have adequate assets to satisfy the judgment, a court could order garnishment of your future wages instead. Yes, even a person with no current net worth could still be required to pay an outstanding liability from future earnings.
What to Expect from Your Policy
When you purchase umbrella insurance, be sure to do so from an independent agent here at the Andreotti Agency. We can walk you through the entire process, from assessing your coverage needs to shopping around for an umbrella policy on your behalf. In most cases, we can find an umbrella policy with $1 million in coverage for around $200 per year. Additional savings may also be available if you purchase your homeowners and umbrella policies from the same carrier. For more information, or to request your free quotes, contact our office today.
How would you pay for damages in a major lawsuit? How would it affect your plans for the future?
