Whiteboard Series: Episode 12 – Personal Umbrella Policy
Insurance is a boring topic that’s easier to ignore than understand, but it plays a vital role in protecting long-term financial strategies. Personal Umbrella Policies, in particular, are often overlooked in the context of insurance planning. Personal Umbrella Policies are additional layers of insurance that provide liability protection above and beyond the coverage-levels provided in home and auto policies. These are put in place to protect the assets on your balance sheet as well as to provide peace of mind in the event of a catastrophic occurrence. It’s easy, inexpensive insurance that everyone should own as a part of their comprehensive financial strategy.
The Whiteboard Series is a continuous exploration and discussion across a wide range of personal finance topics. Through a series of drawings, interviews and explanations, we hope to educate and simplify important financial planning principles.
On today’s Whiteboard Series, I want to slide over to the insurance world briefly and touch on the value and importance of Personal Umbrella Policies. No one likes talking about insurance as it’s generally a pretty boring topic, but it plays a vital role in PROTECTING a long-term financial strategy over time.
Personal umbrella policies essentially provide EXTRA liability insurance, above and beyond home and auto policies.
So, a lot of people, a lot of families out there own both homes and cars. To protect their homes, they have homeowner’s insurance that covers certain damage to the house or injuries that occur on the property. To protect their cars, they have auto insurance that again protects damage to their cars or injuries that might result in a car accident. But both these types have coverage limitations on them, that might not provide enough coverage in the event of something catastrophic.
For example, many homeowner’s and auto policies provide liability coverage up to $250k or $500k for certain injuries. And while this is generally enough coverage for most types of occurrences, there is still the remote, but VERY REAL, possibility of needing more insurance.
That’s where Personal Umbrella Policies come into play. Personal Umbrella Policies provide that additional layer of liability coverage if you’ve exhausted the limits of your home and auto policies. So, if you’re in a really bad car accident and someone incurs a lot of medical expenses, or something really catastrophic happens on your property, you’ve got some additional coverage that, as its name implies acts like an umbrella protecting your assets.
It’ll protect your home or car, but also your other assets like financial accounts if you’re ever sued or need to come out of pocket above your home and auto policies.
We generally recommend obtaining enough umbrella insurance to protect your net worth. For younger people or new homeowner’s get an umbrella policy for $1M. It’s very inexpensive insurance, maybe a few hundred dollars a year for $1M in coverage.
Again, it’s very unlikely that you’ll ever have to use it, but without it you’re exposing yourself to a lot of unnecessary risk that can really destroy a lot of your life and financial goals. Over time, as kids get older and start driving cars, or they have friends over, perhaps you add multiple properties to your balance sheet, it’s an easy way to keep everything protected.
Like any type of insurance, you don’t need it until you need it, but when you need it, you really need it. And you’ll be glad you have it.