I recently got renewal documents in the mail for our umbrella policy. What is an umbrella policy and why on earth do we have one? Excellent questions! I can’t say whether or not you need one, but here’s why we decided an umbrella policy made sense for us.
What is an Umbrella Policy?
No, it isn’t a policy to cover your umbrellas (HA), but extra coverage in addition to liability limits you already have on your vehicle or home insurance policies. In Colorado, the highest liability limits you can have on those are $300,000 per occurrence. If we were at fault in a car accident, anyone could sue us.
Maybe the medical costs from an accident might be over $300,000, or maybe we live in a small town where people know we own quite a few things and might have a little money. The umbrella policy also covers us if someone is hurt on our home or rental property.
A few years ago, I also had the misfortune of having a former employee try to file a suit against me for a number of reasons. Her case had no merit and didn’t get anywhere, but if she had sued me and won, the umbrella could have kicked in to pay a settlement.
Sadly, in the US, people can sue you for practically anything. If they can find a lawyer to take the case and get to court, you never know what might happen. I know that is a rather pessimistic view of society, but after the one jilted employee, my view of people and their motivations certainly was shifted. An umbrella policy does not guarantee I’ll never have to worry, but it makes me worry lots less.
Do You Need an Umbrella Policy?
I’d say it depends. If you don’t have any assets and you get sued, they can’t get blood from a turnip. However, courts can garnish your current and future wages. It might not make sense to sue someone who obviously had no money, but if someone thought you might in the future, you never know.
If you do own a home or have some money put away, it could be fair game in a lawsuit. Employee sponsored 401k plans are usually shielded, but solo 401k’s or IRA’s might be vulnerable to a settlement depending on where you live.
How Much Does This Umbrella Cost?
The wonderful thing about umbrella policies and why I think almost everyone needs one is that they are very cheap. If you insure your home and cars through the same carrier, adding an umbrella costs very little. For an extra $1 million dollars in coverage, our umbrella costs $224 a year. For under $20 a month, we get that much more peace of mind. You can get umbrella coverage for up to $10 million, but I think what we have is adequate.
Odds are that we’ll never need to use our umbrella policy. I certainly hope the $224 a year turns out to be a total waste of money. However, to help me sleep better at night, paying less than $20 a month is well worth it.
Do you have an umbrella policy? Is $1 million enough coverage?