Personal Umbrella Insurance-Bullet Proofing Your Assets 5/20/07

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Personal Umbrella Insurance-Bullet Proofing Your Assets 5/20/07

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC

Personal Umbrella Insurance-Bullet Proofing Your Assets


“Personal Umbrella Insurance- Bullet Proofing Your Assets”


Over the past few weeks, I have discussed the importance of having adequate homeowner’s and auto insurance.  However, even the maximum coverage under each policy may not be sufficient if you get involved in a serious liability case.  Fortunately, there is an excellent and inexpensive solution to this problem.  A Personal Umbrella policy is designed to pick up where your homeowner’s and auto polices leave off and increases your protection by $1,000,000 or more.  Here’s how it works.

The Personal Umbrella policy has a very large deductible, often $300,000 or $500,000.  To satisfy this large deductible, you must raise the underlying limits of both your homeowner’s and auto coverage.  For example, if your homeowner’s and auto coverage both had $100,000 limits for liability, and the umbrella policy had a $500,000 deductible, you must raise your homeowner’s and auto liability limits to $500,000.  Let’s say you are at fault in a car accident that severely injures another person and that person is awarded a $1.2 million judgment. Your basic auto policy would cover the first $500,000 while your umbrella policy would cover the remaining $700,000.  In fact, you now have $1,500,000 of total coverage: $500,000 of basic coverage plus $1,000,000 of umbrella coverage.

The cost for this coverage is very affordable, given the peace of mind it provides. A $1,000,000 umbrella policy can cost as little as $150 per year.  “Factors influencing the premiums include number of cars, homes, youthful operators, pools, ATV’s, boats and the driving record of the operators,” says Ben Jackson of Sevier, Fowlkes & Jackson Insurance, a division of Compass Insurance Agency, Inc.

Many people erroneously believe that they are ‘suit-proof’ because they have few assets.  In fact some newly-minted physicians take this position because their student loans place them squarely in negative net worth territory. However, a judgment can be held until you become successful or your future earnings could be garnished. Therefore, unless you are committed to a life of financial destitution, you should consider having an umbrella policy.

How much coverage should you have?  Most people should have at least the minimum $1,000,000 umbrella policy.  For our clients who have begun to accumulate considerable assets, we quickly increase the coverage to a range from $2 million to $5 million.  The cost of higher coverage runs less than $1,000 per year.

A real life example: A good friend and client’s car hit a patch of ice and slid into the oncoming lane causing a head-on collision.  Two passengers in the other car were not wearing seatbelts; both went through the windshield, receiving severe facial lacerations requiring extensive plastic surgery.  They sued and received a mid six-figure settlement.  Fortunately, my client had an umbrella policy which covered the settlement.  Otherwise, his personal assets would have been at risk.

Finally, it’s worth remembering  that a personal umbrella policy insures many situations that are not covered under the typical homeowner’s and auto policy including extended coverage for defense costs, slander, rental cars, play-toy rentals such as jet skis and boats, non-profit work and pollution.  Also, I recommend buying your umbrella policy from the same company as your homeowners and auto policy to make certain there is no gap in coverage.