Marc A. Hebert's Money Sense: Personal umbrella liability insurance coverage - do you need it?
By MARC A. HEBERT
Is your existing insurance on your home and auto(s) adequate to cover a major claim? While you might have liability on your auto and homeowner's insurance already in place, is the coverage really enough?
The answer to these questions may come in the form of umbrella liability coverage. This is pure liability coverage and is meant to protect you from large and potentially devastating liability claims or judgments.
Umbrella insurance acts just like its name - an umbrella over your existing home and auto coverage. You must buy a minimum amount of auto and/or home insurance liability coverage before you can add umbrella coverage, and these limits of liability must be coordinated.
For example, if your auto insurance pays $300,000 as the maximum amount of liability for a claim and the actual damages are $800,000, an umbrella liability policy with $1,000,000 of coverage would kick in to pay the $500,000 difference. Imagine if you didn't have the umbrella. Your personal assets could be at risk.
It could get worse from there. What if the driver you hit was a highly paid doctor and the accident caused him or her to be unable to work for months or years? You might get sued to cover the doctor's income while away from work.
As a result, an umbrella liability policy is worth considering. Here are a few additional factors to keep in mind:
. Protects assets: With some exceptions, whatever amounts of personal assets an insured might have go toward paying the claim if another source is not available.
Be advised though, it isn't all about the assets. Don't just buy enough umbrella coverage to protect your assets. Consider the potential size of the claims. The amount could be well above any asset base you might have.
Protects future income: Continuing with the example above, if you have no assets the $500,000 difference would have to come from somewhere. Garnishing income is a potential solution the courts will look to.
. Covers claims that standard home and auto insurance may not pay. The usual homeowners and auto coverage does not pay for slander, libel or false arrest. Having an umbrella policy might cover these types of claims.
. Might pay legal costs: Depending on the situation, home and auto insurance might cover legal expenses. Defending a lawsuit is expensive and having an insurance company pay the costs is a plus.
. Low cost: Umbrella coverage is typically not expensive, especially when compared to the value of the coverage you get. It might cost even less if your home, auto and umbrella are all placed through the same carrier. This also reduces the need to deal with multiple insurance companies in the event of a claim.
Be sure to get quotes for a few umbrella insurance limits before making your decision.
. Exclusions: Personal belongings, intentional or criminal acts or omissions, written or oral contracts and business losses are typically not covered.
It is also important to note that umbrella insurance only protects you for damages done to other people. If you are the one who gets hurt, it is your health insurer that will provide the coverage.
. Psychological comfort. In what can seem like a lawsuit crazy world, this is just one more defense to protect you and your family and provide the peace of mind that comes with safeguarding your assets.
This is just a brief summary of umbrella liability coverage. For more details related to your specific situation, we suggest you contact your property and casualty insurance agent.
Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at firstname.lastname@example.org. Your question and his response might appear in a future column.