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What is umbrella insurance and why might you need it?

Many people want to know the best way to protect their wealth: Is it an asset protection trust? Putting property in the name of a spouse? Creating a limited liability entity?

While each of these techniques can be helpful, one simple and relatively inexpensive risk-management technique that many people overlook is umbrella insurance.

What is property and casualty insurance?

Property and casualty insurance protects your valuables, like your car or your home, and provides liability coverage to protect you if you are found legally responsible for an accident that causes injury to others, damages their property, or both. Common examples of property and casualty insurance are homeowners insurance, car insurance, renters insurance and boat insurance.

What is umbrella insurance?

Umbrella coverage is excess liability coverage, which protects you from major claims and lawsuits. This helps you protect your assets.

There are two aspects to umbrella coverage. First, it can provide additional liability coverage above the limits of your property and casualty insurance policies. This coverage is designed to kick in when the liability coverage on those other policies has been used up. Second, it provides coverage for claims that might not be included in other liability policies, like false arrest or liability on rental units you might own. As well as covering losses from these risks, umbrella coverage also helps cover attorneys’ fees and, in some cases, other charges that might come up if you are involved in a lawsuit.

How much coverage is enough?

There is no right answer to this question.

It depends on how much you want to spend to protect your assets. Umbrella coverage is generally quite affordable, up to certain dollar amounts, but you should take time to think realistically about the risks you face and the potential for a lawsuit. Often you can obtain umbrella coverage as an addition to your homeowners, condo or renters policy. Many of my clients have purchased between 1 and 3 million of coverage. 1 million dollars of coverage cost as little as $250 per year.

Think about how long you have worked to acquire the wealth that you have. Is it worth spending that amount of money to protect your wealth?

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