Take precautions to protect your money from lawsuits.
I wish it weren’t so, but we live in a world where a person can sue and win for tripping over a crack in the sidewalk, falling off a roof, burning themselves with hot coffee, and countless other things. Given this reality, it’s wise to take precautions to protect your money from lawsuits. One easy-to-overlook but relatively inexpensive precaution is umbrella insurance.
When It Rains, You’ll Be Glad You Have an Umbrella
You likely already have some level of liability protection through your auto and homeowners insurance policies. Auto and homeowners policies typically include $100,000 to $500,000 in liability protection. Although it may seem like a lot, the liability coverage you get through your home or auto policy isn’t enough because (1) you can be sued for reasons unrelated to your house and your car, and (2) you can be sued for amounts that are much greater than the liability limits of your home and auto policies.
Let’s say, for example, that a worker falls off the roof of your house while cleaning out the rain gutters and breaks her leg. And let’s say your homeowners liability coverage is $300,000. To your surprise and dismay, the worker sues you for $400,000, which means you’re on your own when it comes to that $100,000 difference.
Unless, of course, you have an umbrella policy. Umbrella policies pick up where your other coverages leave off, by providing you extra liability protection above and beyond what’s offered through auto and homeowners policies.
A Lot of Protection at Little Cost
The good news is that umbrella liability insurance is inexpensive. You can get a lot of protection for very little cost. One million dollars’ worth of liability protection above and beyond the liability protection offered by your other policies typically costs less than $250 a year.
To get a rough sense of how much liability protection you need, figure out how much you would stand to lose if you were sued for everything. It’s wise to have enough liability protection to cover your net worth plus the amount you project you’ll add to your net worth a year out in the future. [[AdMiddle]
Most umbrella policy providers will require that you maintain certain levels of liability coverage in your home and auto policies. Then, your umbrella policy takes over where those underlying liability limits leave off.
And here’s a tip: When comparison shopping for an umbrella policy, check with your home and auto insurance carriers. You may be able to get a better rate by having multiple policies with the same carrier.
For more on insurance, please check out the Money Girl episode on which insurance policies are essential.