Recently the financial website WalletHub.com asked me to provide expert comments about umbrella insurance for one of its articles. Below is the information I provided. The link to the WalletHub.com site is listed at the end of the article.
Who should purchase Umbrella Insurance?
Umbrella insurance is a type of insurance that sits on top of other insurance policies and provides additional insurance coverage. It provides coverage that is typically an addition to the coverage of someone’s primary insurance policies such as auto, renters or homeowners insurance. It extends over your existing policies offering an extra layer of protection in case you are sued, and the damages exceed the limits stated in the underlying policies.
Umbrella insurance is typically suited for individuals or families that have a more complex financial structure than an average person, but it is also suitable for people whose lifestyle might present additional risks. From a financial perspective, people with significant assets, people with rental properties, people with one or more businesses, and people who have high liability professions that are more likely to be sued, are all candidates for umbrella insurance.
Umbrella insurance is also good for people whose hobbies or lifestyle could pose additional risks and include people with swimming pools and trampolines, and people who engage in hunting, skiing, and recreational flying.
A good way to determine if an umbrella policy is good for you is to look at the individual coverages for liability on your home, business, renters, and auto insurance policies. If your assets significantly exceed the combined coverage, then an umbrella policy makes sense. Remember, in these days where juries award large sums of money in damages to plaintiffs, having extra insurance, assuming the cost is not prohibitive, is a good idea.
How should people choose their Umbrella Insurance coverage limits?
Like any insurance decision, the amount of insurance you need is determined by your assets base or potential financial loss, the risks or exposure to loss that might have, and your tolerance for risk, understanding that most people do not get sued for damages for which they have coverage.
To begin with, add up your assets. Do not forget to include investments, businesses, rental properties, brokerage accounts, vehicles, and collectible assets like artwork. Give some thought to where you might have exposure to risk. The more you and your business activities deal with other people, the greater is the potential risk that those people could make a claim against you. As an example, running a bookstore is probably much safer than running a night club.
Also remember that if engaged in any form of a lawsuit legal fees will have to be covered, and legal fees in any type of litigation can add up quickly. Then you need to get quotes so that you can evaluate the cost/benefit ratio of any policy. Obviously the more your coverage, the higher the cost.
Finally, I would recommend asking for the advice of an insurance professional as to how much coverage the professional thinks is appropriate based on your asset base and your potential risks.
You can access the online version of my comments through the following link:
https://wallethub.com/edu/oi/umbrella-insurance/9808#expert=Michael_Manahan