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Umbrella Insurance Beats Paying Forever

up-2It’s a cold and rainy night, and you’re on your way home after a late night at work. Your car skids on an off-ramp that is a little oily in addition to being wet. You plow into a Bentley with a highly paid business executive at the wheel. He’s hurt so badly that he cannot return to work. Umbrella insurance beats paying forever and you could benefit.

Months later a jury awards him tens of millions of dollars and you have to pay it. You’re wiped out financially. Of course, there’s bankruptcy to get out of the judgement.

The court takes your savings, goes after every asset you have and, for decades, requires you to give up a part of your salary in an effort to extract restitution for the execs medical bills, lost income, and pain and suffering.

Try counting enough sheep to make THAT mental picture go away.

While there is no amount of insurance to make a scenario like that be okay, there is coverage that you can get that would help keep such a tragedy from being the end of your world as you know it. Umbrella (or excess liability) coverage, will take care of your liability for the lawsuits and medical bills of the auto accident victim — or of the teenage guest who dives into the shallow end of the swimming pool or the deliveryman who trips on the front steps.

Umbrella insurance coverage are extensions of home and auto insurance. Banks make people buy homeowners insurance to get mortgages, and states require drivers to buy car insurance. But no one mandates buying a policy that could turn out to be the most important part of your insurance package. Find Affordable Homeowners Insurance Coverage. Search Rates.

Given the enormous potential cost of a lawsuit the surprising thing is how few people choose to opt for such coverage. State Farm reports that, though the coverage is not uncommon in high-end neighborhoods, too often people who really need an umbrella are left out in the rain. Of the 26 ZIP codes in California that carry the most wealth in the Golden State, only 50% of households carry umbrella policies.

Even people with major assets who do buy umbrella policies often do not buy enough. “This is a neglected area,” said Mark Schussel, a spokesman for the Chubb Group of Insurance Companies, which caters to affluent home and auto owners. “Some people have some coverage. But they haven’t changed the amount in years. Some people have a $1 million figure in their heads, and it just doesn’t make sense anymore.”

Others have heard of it but do not understand. Still, others decide that they do not want to pay for it, even though the cost is usually a fraction of the price of a typical package of home and auto insurance.

This last point cannot be overstated! The cost to add umbrella coverage to existing auto and homeowner policies will add, in most cases, no more than 8% to the cost of the coverage as a whole. While all insurance could be said to be a gamble, this is a bet with a very small ante and a large potential pot at the end, waiting to protect you.

Is umbrella coverage right for you? Unless you have absolutely nothing in the way of assets, income, and family OR you have more money than some banks, the answer is yes.