Should I Have an Umbrella Policy?

Should I Have an Umbrella Policy?

Umbrella policies are an inexpensive way to extend your insurance coverage up to a million dollars or more. Why do that? To protect your current assets and future income. In fact, an umbrella policy is an important part of an overall estate plan. Like life insurance, disability insurance, and asset management, an umbrella policy is a way to secure your future from the pitfalls of unfortunate events.

If you cause a car accident and someone dies, then you will face an extensive lawsuit. If you disable or kill a young professional, you could easily face repaying his or her future lost wages. So if your car accident means that the victim can’t work for the next 20 years, you are liable for the $1 million of future lost wages.

And where does the money come from to cover those losses? Your own wages.

First, your insurance company will pay — but only up to the policy limit. And for many people, that’s as low as $15,000. People with “good” insurance, often have $100,000 of coverage. But even with $100,000 of coverage, you would still be on the hook for $900,000. That $900,000 will come out of your own future earnings at a rate of 25% per year.

A personal injury attorney can advise you on the kind of insurance you need. For most people who are mid-career, then you will need an umbrella policy to protect you (and your family) for the future. You will have to increase your auto insurance rates to the maximum. Then, you will add the umbrella policy and have the coverage you need to protect your home and future income.