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It’s getting to be the rainy season, so I thought we’d talk about umbrellas. Let’s start with a story, though. In this story, YOU are the star! You, you little socialite, decide to throw a party. It’s the talk of the town. Everyone will be there. You’ll have hors d'oeuvres poolside and dancing until dawn! But, unfortunately, the hors d’oeuvres used some mayo that you didn’t realize had expired in 1998. Everybody comes down with food poisoning, misses work and sues the pants off of little ol’ you. Or, much worse, somebody falls in the swimming pool and meets their demise. Either of these instances could mean a large lawsuit. But you have homeowners insurance, so you should be good, right? Maybe not in the amount of 50 people’s missed wages or one person’s life and commensurate contribution to their family’s welfare. Let’s say you have $300,000 of personal liability with your homeowner’s insurance, but 50 people’s wages for the week, hospital bills for the stomach pump and pain and suffering is closer to $1M. Well, my little pretty, that other $700K is coming out of your nest egg. Sucks, doesn’t it? Granted, it’s very unlikely you will have an event that is that catastrophic, but it could happen. Then what?
Cover yourself with an umbrella
Now, it’s time to talk about the umbrella. The umbrella I’m referring to is umbrella insurance. If you’d had $1M in umbrella insurance, only your homeowner’s deductible would have come out of your pocket in the story above. You have to max out coverage for home and car (and boat if you want that covered, too), but after you do that, you’re eligible to purchase umbrella insurance to cover life’s BIG catastrophes.
Who should purchase umbrella insurance?
Anyone with “deep pockets” or unusual liabilities is a good candidate for umbrella insurance. My insurance guy said he looks for people with a net worth over $1M that are at or near retirement and that have situations that have higher than normal liability, like a pool, trampoline, rental property or new driver in the family. My son, though he’s 21, is a new driver, so I qualified on all three counts (high net worth, at or near retirement, extraordinary liabilities). In general, though, you don’t have to have all three of these to go for umbrella insurance. It’s just good peace of mind for some folks. And, if it makes you sleep better at night, it may very well be worth it, because it’s cheap as the dickens.
How much does umbrella insurance cost?
As I said, you have to be maxed out on your other policies. If you are not, that might be the most expensive part of this proposition. The Insurance Information Institute says most $1 million policies cost $150 to $300 per year. You can expect to pay about $75 more per year for $2 million in coverage, and another $50 per year for every extra $1 million in coverage beyond that. Most insurance companies’ umbrella liability policies start at $1 million in coverage, with higher limits available. In my situation (in California), I got $3M of coverage (with one recently totalled vehicle on my record) for less than $40 per month.
What does umbrella insurance cover?
This is another golden aspect of these policies. Though umbrella insurance acts as coverage above and beyond your homeowners and auto insurance, the incident doesn’t have to involve your property or your vehicle for your umbrella insurance to cover it. You’re also covered worldwide, with the exception of homes and cars you own under other countries’ laws. Also, it covers anyone that is a member of your household. (Each policy has a different definition for “household” so make sure you check.)
What doesn’t umbrella insurance cover?
Umbrella insurance doesn’t cover damage to your property (real or personal). You’re just going to have to suck it up and replace that priceless urn that Grandma Ellie gave you that got broken in the indoor hockey game you hosted. Also, if you intentionally body check your guest and get sued for their broken leg, that’s on you because umbrella insurance doesn’t cover intentional acts. You’re not covered for business liabilities or for acts of war, either, but other than that, it’s pretty comprehensive.
Everybody has their own risk threshold. The reason umbrella insurance is so cheap is because it is VERY unlikely you will ever find yourself in a situation where you will be sued for ungodly sums. But some of you out there might be in a higher risk situation (like I am) and a good night’s sleep is worth the price of admission to some umbrella insurance. For me, it beats having to go back to work if my son decides to total yet another car before he’s had his license for a full year (albeit with more dire consequences than last time)…
Looks like Monday morning is the sweet spot for these newsletters. I got the best uptake with my last Monday edition. Also, I’ll be doing the long subject (like the above) and the “actions to build confidence” where they apply, but I will take out the “further reading” section. Seems like you guys are getting enough reading just with the long subject reading. However, the newsletter that was just links got some clicks, so 3 or 4 times per year I’ll do a full newsletter that is all information pulled from other sources like this one. Of course any and all input is VERY welcome! If you’d like to see different topics or different formats, please let me know either by replying to any of my newsletters or popping something in the comments.