How Umbrella Insurance Helps Keep You Covered
By Diane Ferber
Image courtesy of Max Pixel |
Whenever I mention Umbrella Insurance to my
friends, they look up as though expecting to see a thundercloud. While umbrella insurance doesn’t keep you
from getting out of the rain, it can help keep you from sinking into debt should
an accident occur. Allow me to explain.
While most of us protect ourselves with auto
insurance, homeowner’s insurance, and possibly even liability insurance, all
these policies come with built-in limits.
For instance, let’s say you wind up in an at-fault auto accident where
the other car's driver is injured.
And let’s also say that your auto insurance policy has a $100,000
liability limit. As long as the injured
party’s injuries are less than $100,000, all you will have to pay is your
deductible. However, what if the injured
party or parties wind up suing you for $1 million for injuries as well as lost
income. Who would have to
come up with the additional $900,000? Not
the insurance company. You would be
required to make up the difference, plus court costs.
The same goes for professional liability. Just as you face certain risks as an
individual, so does any business you have an interest in. That’s why most businesses carry several
liability policies, including those for general liability, worker’s compensation, and
errors & omissions. Now, let’s say
your business has $1 million in liability coverage. Suddenly, the business is sued, and the plaintiff is awarded $1.2 million. Your
insurer pays off $1,000,000. That leaves
the business and its principles to come up with the other $200,000. Ready to stroke a big check? Probably not.
That’s why you should consider purchasing umbrella insurance. If the
business also had an umbrella policy, the insurer would pay the additional
$200,000. Got it?
1.
How does umbrella insurance work? – Umbrella insurance works kind of
like a parachute. It opens when you find
yourself in financial freefall. By that,
I mean an umbrella policy isn’t meant to work alone. It’s added coverage that’s only used in an
emergency. (Like finding out you or your business is on the hook for damages
beyond your existing insurance coverage range.) Furthermore, the umbrella can cover you or your business's bodily injury, personal injury, property damage, landlord liability, attorney fees, and court costs.
2. What
doesn’t umbrella insurance cover? – Like it or not, even umbrella insurance has limits and exclusions. While it can help you cover damages resulting from a
lawsuit, it doesn’t cover punitive damages.
Punitive damages are those awarded by a judge or jury for reckless or
outrageous conduct on the part of the plaintiff. If you are a board member of a for-profit
company, while the company may be covered by an umbrella policy, the board
members are not. Umbrella policies also do not cover injuries to your person. They are designed specifically to pay for
damages caused to others.
Image courtesy of Max Pixel |
3. How
much does it cost? – For as little as $450
per year, most people can acquire a
million-dollar umbrella policy.
Even better is the fact that if you want to double the coverage to $2
million, this doesn’t double the cost of your umbrella policy. (Talk to your
insurance agent to find out more.)
4. How
much coverage should I carry? – When my customers ask me how large of an
umbrella policy they should carry, I ask them, “How much are you worth and how
risk averse are you?” The bottom line is, the more assets you have accumulated
and the higher the risk you take in your personal and professional life, the
greater the coverage you need. Even more
important is you need to assess your future income potential, since a lawsuit
can target money you have yet to earn.
This
is doubly important for business and medical professionals. If you are a business consultant, an
investment counselor, an advertising executive or any other professional whose
opinion is valued by others, you could easily wind up being sued for the
opinions you render. Errors and
omissions lawsuits where consultants are sued for advice that results in a
client loss are becoming more and more prevalent today.
Medical
professionals who carry malpractice insurance can also benefit from an umbrella
policy. That’s because malpractice
policies have specified limits, which once exceeded can easily wipe out a
physician’s savings, not to mention their practice.
Image courtesy of Pixabay |
5. Do
landlords need umbrella insurance? – If you have tenants, you have the
potential for injury and litigation.
Even worse, you could be held liable for injuries to your tenant’s
guests who slip and fall on the property, get bitten by your tenant’s dog or drown
in the swimming pool.
6. Does
umbrella insurance cover flood damage? – While an umbrella policy covers
property damage, it doesn’t cover flood damage unless the damage was caused by
a pipe bursting or bathtub overflowing to damage the property of someone living
on the floor below who sues you for damage to their property resulting in a
large claim.
7. Is
umbrella insurance tax deductible? – That depends on whether the policy is for
personal or business use. In the case of
a personal umbrella policy, the premiums are not tax deductible. In the case of a commercial policy that
supplements your other business liability coverage, the answer is maybe. (You’ll need to consult your CPA to find out
for sure.)
If you still need help determining if an umbrella
policy makes sense for you and/or your business, call your insurance agent or call
Diane Ferber at (904) 388-6446.
Diane Ferber owns and operates A&B Insurance. To learn more about how you can save money on insurance, visit her
site.
If you get sued over a liability issue, you will definitely think the sky is falling.
ReplyDelete
ReplyDeleteMany have insurance but few have realized the advantages and benefits of an Umbrella policy.
This article explains the features and benefits very well. Thanks I will share it with my friends.