STWS Advisor David Fei’s overview of umbrella insurance. Learn why you’ll be thankful you’re covered, should you ever need it.
Umbrella insurance provides coverage for certain unforeseen situations that may arise from a car crash, owning a property, being self-employed in some occupations, and other events that could cause a financial fallout. An attractive aspect of umbrella insurance is how relatively cheap it is. About $150 to $300 a year will get you around $1 million in coverage, from most insurance providers. The more coverage you have, the cheaper the premium gets, and most insurance companies will give their customers a discount for combining the insurance with other products they offer. On a similar note, it is a common practice for companies to require a policyowner to have a minimum of $250,000 of liability insurance on their auto policy and $300,000 liability coverage on their homeowner’s policy before they can add umbrella insurance. If you’re wondering how much umbrella coverage is enough, a good rule to follow is that the amount should equal at least the total value of all the taxable assets you own.
What Umbrella Insurance Covers
Also referred to as “excess liability” insurance, umbrella coverage policies come into play when a person’s auto or home insurance has been exhausted. It will reimburse approved claims for legal fees, medical bills, and more. Here are the three main ways that this type of insurance kicks in:
Bodily Injury:
- After an auto policy’s coverage has been maxed out, an umbrella policy will pay for other people who were injured in a car crash that was officially determined to be the policyowner’s fault. This includes legal fees and medical bills.
- Likewise, when a homeowner’s policy has paid out its maximum amount, umbrella insurance will cover injuries that occurred on the property to guests who had a fall or some other accident on the premises.
- Umbrella policies can also cover expenses resultant from injuries to other people, caused by the policyowner’s pet.
Property Damage:
- Will cover damage to vehicles and other property that happened during an auto incident where that damage was officially determined to be the policyowner’s fault.
- Umbrella policies also accept claims in connection with damage to other people’s property, such as legal fees and repairs.
- Some policies will cover costs associated with damage to school property or a child on that property, should the policyowner be at fault.
Personal Liability:
Other personal liability covers actions that the policyowner could be sued for, including:
- Slander
- Libel
- False Arrest
- Malicious prosecution
- Mental anguish and shock
D&O and E&O
Some umbrella insurance policies have additional features for people with some specific occupations. Directors and Officers (D&O) Policies offer insurance for liability costs that can incur from being sued while serving on a board of directors for a company, or while working in the capacity of a chief officer (ie, CEO, CFO, etc.)
Similarly, Errors and Omissions (E&O) Policies cover liability that stems from being self-employed. Some occupations where E&O coverage is common include architects, accountants, consultants, dentists, and physicians.
**Written by David Fei, CERTIFIED FINANCIAL PLANNER™, ChFEBC℠.. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of David Fei and not necessarily those of RJFS or Raymond James. 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. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.**