We’ve all been caught out in the rain, and as an avid golfer, I can honestly say I have played golf in weather bad enough to make passersby shoot me strange looks from inside their dry cars. While an all-weather suit is a plus, a good umbrella is a must to stay dry. Just as an umbrella is a necessity in any die-hard golfer’s bag, a financial umbrella policy is a wonderful tool to protect your family.
An excess liability coverage policy (A.K.A. umbrella policy) covers additional liabilities beyond the coverages of the underlying policies. An umbrella policy is a broad form of coverage that covers both automotive and general liabilities when purchased in addition to basic liability plans (home and auto). When the limits of the underlying policies max out, the umbrella policy kicks in.
Let’s go back to golf. If while playing golf in the rain a golf club slips out of my hands and injures a person, the underlying coverages of my homeowner’s policy will kick in first. If the damages were severe and beyond the limits of my homeowner’s policy, my umbrella policy will jump in and cover the excess up to the limit of the umbrella, which range from $1M to $5M plus.
The good news is the costs of umbrella policies are inexpensive: usually roughly $200for a $1,000,000 policy…..if you don’t have teenage drivers. Purchasing an umbrella policy will most often require an increase in underlying limits. This is most often seen in auto policies. While each state has its own minimum liability requirements for auto policies, most umbrella insurers require limits much higher than the minimum state limits. For example, the state of TN requires drivers to carry at least $25,000/$50,000/$10,000 in coverage. To learn more what these numbers mean check out my article about the importance of limits: http://bit.ly/dTMey3 . To obtain an umbrella policy the insurance company may require the insured to carry limits somewhere in the $250,000/$500,000/$100,000 range. While this is a ten-fold increase in liability limits, it doesn’t mean the cost will increase by ten. The increase will be fairly small. Remember, we don’t want to risk a lot for a little! The purpose of insurance is for protection.
We also must understand the distinction between personal liabilities and commercial liabilities. A personal umbrella policy will not cover a liability created by a business liability. Commercial ventures require a separate business umbrella policy. Also, it’s important to make sure the underlying policies and limits are in place. For example, if a parent decides to reduce the limits on a teenage driver to the state minimums in an effort to save money, the underlying requirements of the umbrella policy will not be met. Therefore, if the teenage driver is involved in an at-fault accident, the umbrella policy will not pay out. The parents would be ripe for a law suit.
So just as I won’t risk playing a round of golf in the rain without an umbrella, it’s important to have proper liability protections in place to protect your financial assets. While not everyone requires an umbrella policy, most people do. Umbrella policies are an inexpensive way to give yourself peace of mind and help you sleep a little better at night. While my liability protection concerns are not something that will keep me awake at night, the weather forecast for my next round of golf might.