Authors: Kerry Peabody & Jeremy Milair, Clark Insurance | 207.523.5904
Note from Scott: In completing a comprehensive financial plan, I usually collaborate with my clients to explore their risk exposure, risk tolerance, and existing insurance coverage. Often, we end up discussing umbrella insurance: FAQs, pros, cons, costs, benefits, and more. To that end, I asked Kerry Peabody if he could put together a primer on umbrella insurance for our blog – which you’ll find below. As always, I hope you find the information helpful. If you have questions, talk to your fee only financial planner or contact us.
One of the least understood and perhaps most important types of insurance is the umbrella policy. As the name suggests, your umbrella policy is there to protect you if you find yourself in the middle of a liability cloudburst. Umbrella coverage is excess liability coverage, intended to pick up where your other insurance’s liability limits leave off.
In today’s litigious society, you can be sued at the drop of a hat – especially if the hat hits someone on the way down. As silly as that may sound, no lawsuit is frivolous if you’re on the receiving end. Even if you successfully defend yourself, you could incur thousands of dollars of legal fees in the process. And if you lose or settle, the cost to you can be enormous. An umbrella policy is there to help in these sorts of scenarios.
An umbrella policy can protect you from a broad range of liabilities, including lawsuits for bodily injury, property damage, and slander and libel. What if someone is hurt in your home or on your property? What if your teenage driver hits another driver with your car? What if you’re driving half the lacrosse team to practice, and you go off the road? Do you have a boat, ATV, or swimming pool? Do you host a lot of parties? These things leave you at a higher risk for liability claims. An umbrella policy can help you cover these risks. Every policy is different; before you purchase the policy, be sure to understand what your policy will and won’t cover.
You usually get your personal umbrella coverage from the same company that provides your home and auto insurance. You’ll have liability coverage on those plans, but it’s usually limited. For instance, your auto policy may have a $200,000 limit on bodily injury – covering only the first $200,000 of any injury you may cause. Beyond that, you’re on your own. If you were found liable for $500,000 in damages, you’d have to scrape together the additional $300,000 out of pocket – not an easy feat for some, and certainly not ideal for many. However, an umbrella policy is designed to pick up where your underlying coverage leaves off – paying for damages exceeding your auto policy’s limit.
There are also business umbrella policies, which can protect you from things like malpractice and professional liability suits. The bigger the business, the higher the risk. Just like your personal umbrella, a commercial umbrella policy will provide excess liability protection when you need it. Your commercial insurance agent can help you with this coverage.
Typically, umbrella coverage provides anywhere from $1M to $5M in excess coverage. In some cases, you may want to shoot for higher limits. The more wealth you’ve accumulated, and the higher your wages, the more attractive it’s going to be to file suit against you. Umbrella coverage should be designed with this in mind.
This doesn’t mean, that only “wealthy” people get sued. If you have a home, a couple of cars, a boat, a 401(k) or an IRA, and maybe a business, it all adds up quickly. All of this could be up for grabs in a liability case, and an umbrella policy provides a great deal of coverage. Even so, the price for such coverage is relatively minimal. According to the Insurance Information Institute, a personal umbrella policy with a $1M limit will cost anywhere from $150 to $300 a year—that’s as low as $12.50 per month.
Bottom line: This type of insurance is important, affordable, and accessible. Want to learn more? Pick up the phone and call your insurance agent. If you don’t have an umbrella policy yet, tell them you need to know what your homeowner’s and auto policy cover, and how much it will cost to supplement them with a well-designed umbrella plan. If you do have an umbrella policy, ask them to walk you through what it covers, what the limits are, and how it will coordinate with your underlying coverage. Good luck!
Jeremy Milair, ACSR, is a native of Syracuse, and graduated from the University of Southern Maine. He is an account manager and licensed agent serving the Personal Insurance customers at Clark Insurance. Kerry Peabody, CLU, CLTC, specializes in disability and long term care planning. | www.clarkinsurance.com | 207.523.5904
Neither Kerry Peabody, Jeremy Milair, or Clark Insurance are affiliated with F.L. Putnam Investment Management Company. This content is presented for educational and informational purposes only and has not been verified or endorsed by F.L. Putnam Investment Management Company or any of its affiliates. F.L. Putnam Investment Management Company is under no obligation to provide updating information to this content as published.
Any references to outside content are listed for informational purposes only and have not been verified for accuracy by the Adviser. Adviser does not endorse the statements, services or performance of any third-party author or vendor cited.
Advisor is not a licensed insurance broker or agency and does not sell or solicit the sale of any insurance products. Licensed individuals should be contacted for insurance product suitability and policy acquisition needs.