One of the scariest prospects in our litigious society is that someone will decide to sue you. Whether it’s due to the result of an accident, or some sort of error in your business, the thought that someone could sue you for your assets can keep you up at night.
In order to avoid financial ruin in the event that someone sues you, many people carry liability insurance.
What Does Liability Insurance Cover?
The liability coverage that’s part of your auto policy protects you during an accident.
Liability coverage in your homeowners policy can help you in the event when someone sues you for something that happens on your property.
Many business owners get liability coverage to protect their businesses (this can also include “errors and omissions” coverage for certain professionals).
However, liability coverage is often limited. After a certain point, you aren’t covered. So what happens if someone sues you for more than your insurance coverage?
If you have the assets available, you might have to make up the difference. Many of those who have a reasonably high net worth find themselves as targets of lawsuits. And the higher your net worth, the bigger you are as a target.
In order to better protect your assets, it can make sense to purchase umbrella insurance.
What is Umbrella Insurance?
The point of umbrella insurance is to pick up where your other liability coverage leaves off. Many umbrella policies are taken out for amounts ranging between $1 million and $5 million, although you can get a bigger policy if you feel it’s needed.
Umbrella insurance will only kick in after your other liability coverage is exhausted. So, if you have $500,000 in liability coverage for your homeowners policy, and someone sues you for $1 million, the homeowners policy will cover the first $500,000, and the umbrella insurance will cover the next $500,000.
Does Your Business Need Umbrella Insurance Coverage?
If you own a business, you might need a separate business umbrella policy to cover your business assets. Some policies will add a home business endorsement if you have a home office, but don’t want to buy an entirely separate policy. Your insurance agent can help you figure out how to proceed so that your assets are adequately protected.
Umbrella insurance costs vary depending on how much coverage you want, and other factors commonly used to set insurance rates. However, a common rule of thumb is to figure about $150 per year for a basic $1 million in umbrella coverage, and then add $50 per year for every million after that.
Double-check with your insurance agent about final costs, and payment options. It’s usually possible to add umbrella insurance to an existing policy package, and you can offset the premiums by raising your deductible on your regular coverage.
Just make sure your emergency fund is sufficient to cover your deductible.
Consider your situation as you contemplate umbrella insurance. If you are worried about protecting your assets, umbrella insurance might be a good choice.
If you have a lot of assets, and people know that you have them, a good umbrella policy is usually in order (since the wealthy are often targets of larger lawsuits).
Does your business have umbrella insurance? What are some of the pros and cons to having this extra coverage?
Image courtesy of Aduldej and FreeDigitalPhotos.net.