Personal Umbrella

Liability insurance is the coverage that protects you from the high cost of paying your legal liability for an accident that causes injury to a person or damage to property. Depending on the injury, it's difficult to tell what the judge or jury will award the person in a judgment against you.

It has been said that there are more lawyers per capita in the United States than any other country. New York State is the state with the highest concentration of lawyers outside of Washington D. C. (which isn't its own state). With an increase in the number of lawyers, there is also a greater number of lawsuits.

Fortunately for many people, insurance is available to shift the significant cost associated with these lawsuits. It's common to wonder how much liability protection you should have. This is a tricky question to answer because we can't see the future. There are a few approaches that can be helpful in determining an appropriate amount of coverage.

THE FUTURE EARNING POTENTIAL METHOD

For example:

Consider a situation where you have a sneezing fit or fall asleep at the wheel, causing an automobile accident where the person you hit becomes paralyzed and can no longer work to provide for their family. It's common in NY state for a breadwinner to earn upwards of $50,000 per year. If the person is fifteen years into their career (age 40) and has 25 working years left, the math is simple: $50,000.00 x 25 years = $1,250,000.00 is the amount of money that that person would earn if they had continued to earn $50,000 for the next 25 years.

Many automobile insurance policies limit the per-person liability limit available to be purchased by the policyholder to a maximum of $250,000 per person.

If you selected the maximum limit available on your policy, you would have coverage under the policy and the insurer would pay out the policy limit, and then you would be responsible for the difference. If the Jury awards the widow and her children a judgment against you of the full $1,250,000.00, then you would only be responsible to may the remaining $1,000,000.00 out of pocket after the auto insurance policy has made payment.

If you had purchased a personal umbrella policy, you would have extra liability protection above what is offered by your homeowner's and auto insurance. The limits available from a personal umbrella policy are typically available in even $1,000,000.00 increments. You could have a one, two, three, four, five million, or even a higher limit on your umbrella.

THE ASSET PROTECTION METHOD

You can determine the amount you would lose if your entire asset base was wiped out instantly, by totaling the value of your owned assets (real estate, bank accounts, retirement funds, pension, etc.). Some people walk around with a target painted on their back based on occupation, role in the community, or by virtue of your status as a successful individual. If someone feels that you may have deep pockets, they may raise the amount asked for in a lawsuit.

Ultimately, in the environment that we live in, a person could sue for any reason, and make any demands. It may not go very far in the court system, but the mere cost of defending of yourself and your good name can grow very quickly.

The benefits of a personal umbrella policy far outweigh the costs. Many people are surprised to find that an umbrella can be obtained for under $20.00 a month. It is a way to sleep a lot better at night knowing that you are much less exposed.

Umbrellas are useful for more than just adding protection against a bad car accident or a personal lawsuit that would be covered by homeowners insurance. An umbrella would also be able to be written to go over top of insurance you have for a Boat, RV, Motorcycle, Snowmobile, ATV, or other toy.

The umbrella dovetails with the underlying policies that it goes over. It will have requirements for these underlying policies. It's common for an umbrella to require automobile liability limits of $250,000.00 per person for bodily injury liability, $500,000.00 per accident, and $100,000.00 for property damage. Further, it is likely to require that homeowners insurance be written with a liability limit of $300,000. Liability for your other policies will each need to meet the requirements set forth in the umbrella policy's provisions, or you may end up with a gap in coverage.