Importance of an Umbrella Policy.

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What’s an Umbrella policy?
According to Investopedia, Umbrella Policy is defined as follows: a type of insurance that be indispensable when you find yourself liable for a claim larger than your homeowner’s insurance or auto insurance will cover.
How Does an Umbrella Policy Work?
In practice, an Umbrella Policy will protect more than just the policyholder, but also members of a family outside of that household. For example, if your kid is a reckless driver and he wrecks into another car. Any injuries from both parties will be covered with that umbrella policy.
Do You Need Umbrella Insurance?
As a general rule, you might have heard that you should get umbrella insurance if the total value of your assets, savings and checking accounts, retirement and college funds, is greater than the limits of your auto and homeowner’s liability. The idea behind this advice is that you want to have enough liability to fully cover your assets so you can’t lose them all in a lawsuit.
This recommendation doesn’t exactly make sense though. A good question to ask if, am I at risk of being sued. In reality it all comes down to how liable you are at the moment. Say you have a hot tub, a dog, or even a reckless teenage driver, in those cases it would be in your best interest to get umbrella insurance.
Umbrella Insurance Example
Your homeowner’s insurance policy limit is $400,000. Now let’s say you throw a spectacular house party that attracts a lot of attention. You were just way to distracted with obtaining the right amount of food for all of the guests that you forgot to salt your steps to your front door. And one of your guests slips on those icy steps and breaks, let’s say, her ankle. And then the family of that girl sues you for $1,000,000. Well what do you do now? That’s where Umbrella Insurance comes in. Without it you would have to pay the difference of $600.000 out of pocket. The Umbrella will cover that $600,000 plus any attorney fees, etc. all while your retirement savings stays intact.
How Much Does Umbrella Insurance Cost?
The cost of an umbrella policy depends on where you live (state), how much coverage and the risk that insuring you presents to the insurance company. The more things you own (cars, homes, etc.) the more expensive the policy will be. But you’re in luck, umbrella insurance tends to be cheaper than most other policies. Say you chose a $1 million dollar policy, those tend to cost between $150 to $300 a 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.

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