The Money Shot
BY STEVE DOSTER
There’s a little known insurance policy that is inexpensive and great to have. It’s called an umbrella policy and it also goes by the more technical name of “excess liability policy.” It protects your savings and assets if you are ever sued.
Auto and homeowners insurance have liability coverage already included, but it is limited to $250,000 to $300,000. An umbrella policy takes over for amounts that exceed those limits. You may think that you’ll never be sued, and if you are, it’ll never be more than $300,000. That might be a dangerous assumption to make, especially in a lawsuit-crazy state like California.
Let’s say you cause a car accident. The medical costs, loss of work and pain and suffering damages of the people in the other car total $400,000. Your auto policy would cover up to the liability limit of $300,000. The remaining $100,000 would come from your savings. If you don’t have the money, then your wages can be garnished up to 25 percent until the claim is paid.
However, if you have a $1 million umbrella policy, then it would pay the remaining $100,000 claim. And it only costs about $20 per month. That’s very inexpensive for the coverage and peace of mind.
You also get the legal help of a large insurance company to back you up if someone ever brings a frivolous lawsuit against you. The insurance company knows it will have to pay out any claim, so they provide the lawyers to fight the case. Without an umbrella policy, it’ll be up to you to hire a lawyer and pay for their work at $300-$400 per hour.
There are so many real-life examples of an umbrella policy protecting people. Consider if you could find yourself in any of these situations:
- A friend gets injured at your house or apartment.
- Your dog bites someone.
- You write a blog saying something bad about a company and they sue for defamation.
- Your kid causes a car accident.
- A tree in your yard blows over in a storm and injures someone.
- A repairman, landscaper or cleaning person gets injured while working on your property.
Any of these things can happen to us. An umbrella policy will protect you in case they do. And it’s easy to get. Just call your insurance agent to apply. The insurance company typically requires you to hold all of your cover (auto, home, etc.) with them before issuing an umbrella policy. They will also require that all of your policies have the minimum $300,000 liability coverage. That will result in slightly higher premiums.
However, the cost of getting an umbrella policy is well worth the protection it provides.
Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.
