Why Might I Want Umbrella Liability Insurance If It’s Not Raining”

Much like the Qualified Longevity Annuity Contracts discussed last week, umbrella liability insurance can be an effective form of protection. Umbrella insurance is a type of personal liability insurance that covers claims in excess of regular homeowners, auto or watercraft policy coverage. One might think of this type of insurance as a “supplement” to these other types of policies and it is called an “umbrella” policy because it “wraps around” all of them to augment the protection which is already in place.  

Umbrella liability covers injury to others or damage to their possessions and increases the protection offered by the other polices in place should the policy holder be found liable. It does not protect the policyholder’s property. It does extend liability protection, however, to other members of the policyholder’s family or household. Households with young drivers are a good example of where this additional coverage might be beneficial. The incidence of accidents caused by inexperienced drivers is much higher than with more mature drivers. Should a young driver in the household be held responsible for an accident where the damages exceed the policy limits of the base auto policy, the umbrella policy will kick in and hopefully absorb the excess.      

Another attractive feature of umbrella liability coverage is that it is very cost effective. The Insurance Information Institute says most $1 million umbrella policies cost between $150-300 per year in premiums. For about $75 more per year, the protection can be increased to $2 million and an additional $50 per year will add another $1 million in protection. Since our society has no shortage of personal injury lawyers ready to sue, anybody with significant wealth might find this coverage provides a peace of mind that far exceeds the premiums extracted.  

If you would like to learn more about these and other wise financial planning moves, please contact us through our Level 5 Financial LLC website or via phone at 719-323-1240.  This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.  You should consult your own tax, legal and accounting advisors before engaging in any transaction.