Is it worth buying an Umbrella?

Too often we are lulled into a false sense of security because, we have insurance, we’re safe drivers, we don’t do wild and crazy stuff. The problem comes when we fail to recognize that the limits chosen may not be adequate for the potential losses our activities could result in.  It’s the unexpected events that have the greatest impact on us.

The average person finds it hard to imagine really needing more insurance, and it’s even tougher spending the extra money for that insurance. You are working hard, or have worked hard, to build a solid financial base for your retirement nest egg. How painful would it be to see that taken from you after an “accident”? Accidents do happen. We don’t have to be driving drunk or recklessly to cause an accident.  It could be from losing control driving in an ice storm. Perhaps the morning sun’s glare or the brilliance of the setting sun blinds you to a group of teens crossing busy Hartford Avenue or Putnam Pike.  A momentary impediment or distraction is all it takes.

Customers commonly have the misconception that someone you cause to be injured—whether at your home, in your camper, out in a powerboat, or through an auto accident—must settle for the insurance policy limits you have.  If that were the case, the State’s minimum auto insurance limits would be the same for everyone; there would be no need to carry higher limits. How would a person seriously injured in an accident pay their medical bills? Who would compensate them for their lost wages?  Would there be any value placed on a person’s pain and suffering resulting from their injuries?  Who would be responsible for the lifelong medical care of a paralyzed child?

 The reality is the courts look to compensate victims of accidents no matter whether from the deep pocket of an insurance company or by taking all that you own now, and then garnishing your future income. You generally cannot declare personal bankruptcy for injuries you cause another to experience through your negligence.  If your insurance limits are inadequate to compensate your victims, the remainder of your assets will be up for grabs. Stocks, bonds, and any other savings go first; including retirement funds.   Your home and car may be off-limits until you go to sell or trade them. You could find yourself working well into your retirement years to pay for a moment’s lapse of attention.

Have you ever been walking on a stormy day under a sturdy umbrella while others are running past you soaked? The bigger the umbrella you’re holding corresponds to your level of protection against the elements. It may not prevent you from experiencing all discomfort, but that umbrella sure does determine how wet you end up.

That analogy applies closely to Umbrella Insurance. Like the umbrella protecting you in a storm, a personal umbrella policy provides a canopy of protection over each of your individual insurance policies.

When people come in to buy insurance they are looking to protect themselves from the devastating impacts an accident could have on their financial security. Most assume the only individuals needing an Umbrella are doctors, lawyers, and other high-income professions.  Those professions may want to invest in a $2 to $5 million umbrella but in today’s legal climate everyone needs to consider having an umbrella.

You don’t have to take out an umbrella policy to improve your level of protection. Some may decide to simply increase their auto liability limits because they have a teenage driver. Some will increase their homeowner policy because they have a swimming pool and kids.  Having appropriate limits for your high exposure activities is important without losing sight of all the respective policies you have and the loss potentials for each. You may have separate policies for your homeowner, auto, boat, vacation home, rental property…  Each of those policy limits apply only to the liability limit of the respective policy. The policies do not combine to collectively give you a larger pool of money to draw from following a loss. That collective pool is provided through the purchase of an umbrella policy.

The cost of an umbrella has many variables affecting the price. Those variables include the number of cars on the policy, the age, and number of drivers, your family’s violation and loss history, the number of properties owned, and your professions. A family that owns their home, has 2 cars, and 4 drivers can expect their umbrella to cost $25-40 a month. 

Can you afford not to buy an umbrella?