February 1, 2012

Do You NEED Umbrella Insurance?

An umbrella insurance policy is a form of insurance that provides general liability insurance coverage.   The coverage for  umbrella insurance is typically for $1 million or more.    Americans seem to be in borderline paranoid fear about lawsuits.  I think we watch too many television shows that revolve around lawyers.  The reality is that million dollar lawsuits are actually very rare.   However a large lawsuit is a risk, albeit a small one, so protecting against such a lawsuit with insurance can be a smart move at least in some circumstances.

What does it cost?

The cost of an umbrella policy can typically run $100-$200 for the first $1 million in coverage.   But keep in mind that this amount is often on top of other forms of insurance.   When my wife got a quote for umbrella insurance they required that we had maximum liability on our home and auto policies first.   If you aren't already covered with maximum liability on your home and / or auto policies then you may need to pay more to get that liability coverage first.

Who should buy it?

My opinion is that umbrella insurance is not necessary unless you have significant assets to protect.   An unfortunate number of Americans have little assets or are technically insolvent.   Those people do not need to bother with umbrella insurance.   If you have nothing to sue for then buying a big fat insurance policy is not really necessary.

On the other hand if you have any significant assets then an umbrella policy can be a very good idea.  It doesn't hurt to have umbrella insurance coverage.   The worst thing that can happen is you spend money on a policy you will never need.

People with higher liability have a higher need for umbrella policies.   If you own a business or otherwise expose yourself to higher liability then an umbrella policy can make more sense.   Individuals with lower liability should worry less.  

A Lower Priority Insurance
One caveat is that I certainly think that there are other forms of insurance you should obtain first as a higher priority than umbrella coverage.

Higher priority insurance includes :   health insurance, life insurance, short and long term disability insurance, long term care insurance

If you don't have those then you need to get them first.  If you have to make a choice between where you spend your money then umbrella insurance should be a lower priority.

I think most people do not "need" umbrella insurance.   However it doesn't hurt to get it.   If you have a large amount of assets or specific liabilities then it can be a smart investment.

I have to admit that I do not have an umbrella policy myself.  My wife and I shopped for it and discussed it but we decided that higher liability on our home and auto are sufficient in our opinion.

Image by Molly DG


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