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Importance of Having an Umbrella Policy

Importance of Having an Umbrella Policy

| March 12, 2024

An umbrella policy or excess liability insurance gives you extra protection on top of your existing liability coverage, such as homeowners or auto insurance. It becomes effective when you max out your primary policies, providing financial security during costly situations.

What The Umbrella Policy Covers

Lawsuits

An umbrella policy is a backup plan once your other insurance coverages are exhausted when facing a lawsuit. For instance, in a scenario where someone is involved in a car accident with a doctor, the injured party might target the doctor's potentially high income in their pursuit of compensation. In such cases, the umbrella policy provides additional financial protection beyond what the doctor's primary insurance can offer.

The extra layer of coverage ensures that the doctor's assets, savings, and future earnings remain safe from legal expenses and potential settlements. Depending on the policy, the umbrella policy can cover things like libel, slander, and certain personal liability situations not covered by other policies.

Third-Party Bodily Injury

The umbrella policy offers protection when you’re responsible for injuring another person, whether a neighbor falling in your yard or your dog biting the mailman. A scenario you may not consider is when your children have their friends over for a sleepover. A policy would protect your assets against a litigious parent, if one of their friends is injured while in your home.

In the event of liability for another person's injuries, an umbrella policy covers medical expenses and other related costs that exceed the limits of your primary insurance policy, ensuring that you're not left solely responsible for covering expenses in such unfortunate situations.

Property Damage

Similar to bodily injury coverage, an umbrella policy also extends to damages caused to someone else's property that exceed the limits of your primary insurance policy.

For example, if you’re living in a condo, and while hanging your new flat-screen TV on the wall you damage a water pipe, causing water damage to your neighboring unit. Without umbrella insurance, you could be paying a major out-of-pocket expense not covered by your normal property insurance.

Why You Need an Umbrella Policy

A Safety Net Against High-Risk Activities

An umbrella policy is essential if you engage in high-risk activities, from businesses to sports and hobbies. For instance, if you own a rental property or boat, there is a higher likelihood of potential lawsuits for injuries, property damage, or even false accusations. The umbrella policy keeps you from depleting your finances through legal costs and shields your current and future earnings.

Protecting Valuable Assets

As your net worth grows and you accumulate more assets to protect, relying solely on the liability coverages from your home and auto insurance may not provide sufficient protection. An umbrella policy provides financial security to safeguard those assets and protect your growing wealth from potential liabilities beyond the limits of your primary insurance policies.

Peace of Mind

Even if you don’t fall into the specific high-risk categories that typically necessitate umbrella insurance, having this coverage can still offer invaluable peace of mind. Knowing that you have additional financial protection in case of unexpected events can provide you with a sense of security, allowing you to focus on other aspects of your life without worrying about potential liabilities.

Factors to Consider When Choosing an Umbrella Policy

  • Existing Liability Limits. Check the limits of your homeowners and auto insurance and assess if they‘re sufficient in covering potential risks. You do need to have a minimum required coverage limits to qualify.
    • Vehicles
      • Bodily Injury of $250,000 per person; $500,000 per occurrence with $100,000 of Property Damage
      • Or $300,000 combined single limit
    • Properties
      • $300,000 liability
    • Are your assets vulnerable to lawsuits or other liabilities that could deplete them? Consider getting an umbrella policy.
    • Risk Tolerance. How comfortable are you with the potential financial consequences of liabilities exceeding your current coverage? Get an Umbrella policy for your peace of mind.

Get an Umbrella Policy Today

Investing in an umbrella policy offers comprehensive financial protection against unexpected liabilities. Whether you're accumulating assets, involved in high-risk ventures, facing lawsuits, or responsible for accidents, this policy provides an additional layer of security. Secure your financial future today with an umbrella policy.

Property & Casualty insurance is offered through a variety of quality insurance companies that are not affiliated with MML Investors Services, LLC. CRN202703-6109012