Umbrella Insurance: Are you covered?

For thousands of years, people across the world have been using umbrellas to protect themselves from the rain. Interestingly, the word “umbrella” is also used to refer to a type of insurance. Here’s what you need to know.

A personal umbrella policy (PUP) is a type of liability insurance designed to kick in when a liability limit on a regular auto, homeowners or renters insurance policy is met. According to DMV.org, umbrella insurance generally covers personal injuries sustained either on your property or in a car accident due to your fault. It may also cover property damage caused by your child, your pet or by yourself in a car accident. In addition, it can provide protection for liability for libel and slander.

If you’re involved in a car accident or if a guest is injured in your home, you can get sued. A settlement or penalty, as well as the costs of legal representation, can swallow up your financial assets overnight.

Of course, you have a certain amount of liability coverage in your auto, homeowners or renters insurance — but oftentimes, that’s not enough. In this type of situation, an umbrella insurance policy can help protect your assets. Once the liability coverage from your other insurance policy is exhausted, the coverage from your umbrella insurance comes into play. Let’s say you’re involved in a car accident, and the other driver sues you for $2 million. If you reach a settlement in which you agree to pay $1 million, your auto insurance pays up to its liability limits — $250,000, for example — and then if you have a $1 million umbrella insurance policy, it covers the remaining $750,000.

When you’re thinking about buying umbrella insurance, you need to consider these points to determine your needs and what you’re trying to protect:

• What types of risks do you encounter? Are you on the road a lot, or do you engage in activities that could put others around you at risk? The more risk you encounter, the more likely you are to need umbrella insurance.
• How much are your assets worth? To determine how much coverage you need, you need to calculate the value of all of your assets, including your home, vehicles, savings, retirement funds and stocks, as well as that of any art, jewelry and other valuable possessions.
• How much could you lose in potential income? If you’re ordered to pay damages or if you agree to a settlement, your future earnings could play a role in the amount you have to pay. For this reason, you need to take your earnings into account. This is also important if you’re about to embark on a well-paying career, even if you’re not earning that much right now.

Talk to An Advisor

If you’re interested in purchasing a personal umbrella policy, then it’s a good idea to speak with a knowledgeable insurance agent who can evaluate your needs and advise you on your best options. Talk to your local Bolder Insurance Advisor to learn more.