Umbrella Insurance: An Estate Planning Necessity

An umbrella insurance policy is very helpful when you are sued and the dollar limit of your original policy has been exhausted. The added coverage provided by liability insurance is most useful to individuals who own a lot of assets or very expensive assets and are at significant risk of being sued.

The premium for an umbrella insurance policy may be less expensive if the policy is purchased from the same insurer that provided you with your original auto, home or watercraft insurance. Depending on the provider, if you want to add an umbrella insurance policy, you're required to have a base insurance coverage of $150,000 to $250,000 for auto insurance and $250,000 to $300,000 for homeowners insurance.

Umbrella policies usually provide roughly $1 million to $5 million of additional coverage, and it's possible to get more if you have lots of assets to protect — and don't want to see your estate decimated. You may have a pool, a trampoline or even a dog that can cause injury, or you might engage in activities that increase your chances of being sued, such as:

• Being a landlord.
• Coaching kids' sports.
• Serving on the board of a nonprofit.
• Volunteering.
• Regularly posting reviews of products and businesses.
• Participating in sports where you could easily injure others, such as skiing, surfing or hunting.

An umbrella policy helps you pay what's owed, plus it may provide coverage not included in a base insurance policy. Suppose you run a red light and accidentally hit another car, causing significant damage to the other vehicle and even injuring several people. You may find yourself liable for expenses that go far beyond the coverage limits of your insurance. An umbrella insurance policy will pick up the additional liability costs beyond your car insurance coverage.

An umbrella policy is a form of personal insurance, so it won't protect you from lawsuits related to a business you own. This even includes babysitting, because that would be considered a business. However, your policy may still cover your children if they babysit part time on someone else's property.

Umbrella insurance doesn't cover racing or any other activities considered to be high-risk, unnecessary use of your vehicle. Recreational motor vehicles, truck tractor-trailers, farm tractors or trailers — generally, vehicles exceeding a 12,000-pound weight limit — may not be covered. Your policy won't cover damage to your own car or house — auto or homeowners insurance should.

Some people think of umbrella insurance as bad-luck insurance, but it provides an additional layer of security. It's always good to be safe and insured. As your financial situation changes, you may need to add more coverage. As a rule of thumb, buy at least enough umbrella insurance to cover your net worth. In a litigious society, knowing your assets are insulated from lawsuits helps add to your peace of mind. Protect yourself from devastating financial loss because of unforeseen events.
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Speak to us, and we can help you decide if you need umbrella insurance to protect yourself and your estate.