The Importance of an Umbrella Policy
You never know how much damage you may cause another person because of an accident. Having enough insurance is important.
If you are a living, breathing person than you have personal liability exposures and maybe even business liability exposures. What exactly does that mean?
It means that you owe a certain duty to those around you and if you do something that breaches that duty, and what you did causes someone bodily injury or property damage, they can hold you liable for those damages. And the damages don’t have to be just measurable costs such as medical expenses or the cost to repair property, but can include compensation for pain and suffering… that can be hard to put a dollar limit on.
In the simplest of terms, your personal net worth may never be enough to pay for those damages. Hopefully you have insurance. Home or renter’s insurance for your personal liability, auto insurance for your car and recreational policies for any boat, snowsled or atvs you may own. And the correct business insurance if you need so.
But what about when those limits are not enough? Or what if there is something that those polcies don’t cover? Then what? Can you afford to pay out of your own pocket?
For just a few hundred dollars most families or businesses can purchase up to a $1 million dollar umbrella policy (and higher limits are available). And in all honesty, everyone should have one as part of their insurance package.
If you are ever found legally liable for damages, you want to make sure you have high enough limits to protect your current assets and all your potential future earnings. If a policy limit is exhausted, it doesn’t mean your responsibity ceases. It just means you now have to pay for it on your own.
Be mindful of the type of excess liability you purchase. There are true excess only policies which only provide additional layers of protection or there are umbrella policies. Umbrella policies are considered a stand alone policy so there could be circumstances where they do not cover something an underlying policy covered and other times they may drop down to respond when an underlying didn’t.