Do you need additional protection beyond your primary insurance policies? Umbrella insurance provides an additional level of coverage to your primary insurance. It can be beneficial for individuals with significant assets, those engaging in activities with high liability potential, and those with low risk tolerance.
The benefit of an umbrella insurance policy is that it protects you against large judgements. In the event of a major lawsuit that exceeds the limits of your primary insurance policies, an umbrella policy can address the gap between the judgment against you and the maximum payout of your primary insurance policy. This means that you would not be personally liable for the remaining amount.
In other words, if you’re involved in a serious car accident and a jury finds you liable for $1M in damages but your automobile insurance policy only provides $500,000 in coverage, you would be personally liable for the remaining $500,000. With an adequate umbrella insurance policy in place, it would cover the difference between your automobile policy coverage limit and the judgment against you.
Another potential benefit to umbrella insurance is simply the peace of mind it can provide. If you are risk averse, adding this layer of coverage to your insurance portfolio may help you sleep at night, so to speak.
Before adding umbrella coverage to your insurance portfolio, it is important to also weigh the potential downsides carefully. You must first already have adequate primary insurance coverage in place before you can add an umbrella policy. And in addition to the premium that must be budgeted for, an umbrella policy comes with its own set of coverage limits, exclusions, and deductibles that need to be considered in the cost-to-use calculation. In sum, you have to balance the overall added cost of an umbrella policy with the financial protection and peace of mind it provides.
The decision to add umbrella insurance should be made after a thorough cost-benefit analysis and consideration of how it fits into your overall financial picture. Consulting and coordinating with your team of professionals –insurance agent, financial planner, and estate planning attorney—can help you make an informed decision.
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