Why Everyone Needs a $1 Million Umbrella Policy (or More)

This article is original content written by Manchester, CT Financial Advisor Thomas Scanlon, CFP®, CPA


What Is an Umbrella Policy?


Personal umbrella insurance is the insurance that is designed to give you liability protection beyond the protection provided by your other insurance policies. While your existing homeowners and automobile policies will cover some liability, they come with caps that limit how much money they will cover for their stated purpose. Personal umbrella insurance is an excess liability policy. Think of this as a backstop.



How Does an Umbrella Insurance Policy Protect You?


In the event you are sued for liability in an auto accident and the judgment is declared against you for $500,000 but you only have $200,000 worth of liability coverage. The rest of the money would have to come out of your own pocket unless you had the umbrella coverage to fall back on. Without the additional umbrella insurance protection, you are susceptible to losing your assets to pay off the outstanding debts, including your home.

How Much is an Umbrella Policy?


Premiums can be only a few hundred dollars a year for a million dollars’ worth of coverage over existing insurance policies. Actual premium costs are dependent on a number of factors including the current insurance company you are using and the personal risk factors involved in your situation. The amount you pay may also be dictated by your credit score.  As was mentioned earlier umbrella policies are excess liability policies that are designed to be used only when the claim exceeds the existing homeowners or automobile policies limits.

Do You Need Umbrella Insurance Coverage?


Here is how you can find out if umbrella insurance is right for you:

• Add Up Your Assets – Add together the worth of your home, the money in the bank, stocks, bonds and other assets and available funds from your 401(K) retirement plan and other savings.

• Look Up Your Liability Coverage – Take a look at your home insurance and your automobile insurance policies and check their maximum liability coverage.

• Run Comparisons – Compare your total assets with the maximum liability coverage for each policy. If the former exceeds the later, you need umbrella insurance.

In today’s society lawsuits are commonplace and in the event an incident does occur, it is necessary to have the right protection to cover yourself, your family, and protect your assets and interests with the right insurance. Investors will need to determine their own risks for added protection such as the amount of time they spend driving their vehicles, the risk of people getting injured on their property, and the general nature of your financial and personal situation.



The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the forgoing material is accurate or complete. Any opinions are those of Thomas F. Scanlon, CPA, CFP and not those necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Tax preparation and accounting services are provided by Borgida & Company, P.C., not as a service of Raymond James. You should discuss your tax or legal matters with the appropriate professional. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.