One of the best things about living in America is the right to a fair trial if you’re accused of wrongdoing – and the right to bring someone else to trial if they wrong you. It can also be one of the worst.
The right to due process is crucial to any free society, but the culture of civil litigiousness has a more ambiguous reputation. For every small claims case that allows a victimized citizen to seek retribution, there’s a case where someone is just trying to make a dishonest buck. If you’ve ever been hit with a bogus lawsuit, you know that being on the side of justice doesn’t guarantee anything.
The fact is, almost everyone is open to some sort of civil suit – even if they don’t do anything to deserve it. If you own a business, that liability is increased tenfold. In order to truly protect yourself against losing assets in a legal battle, you might need umbrella insurance.
Here’s how it works, how to get it, and how to decide if you really need it.
What is Umbrella Insurance?
Umbrella insurance protects people when they’re sued after an event that transpired at their home, in their car, or because of something they did. For example, if you’re skiing and accidentally hurt a fellow skier on the slopes, they could sue you for medical expenses.
Or let’s say you’re hosting a party at your home and someone trips down the stairs. They could sue you for any injuries as well as emotional pain and suffering. While some insurance policies cover this type of personal liability, there are limits to what they can pay.
Once those limits have been met, your umbrella insurance policy will kick in. Think of umbrella insurance as a secondary policy, with your homeowners, renters or auto as your primary policy.
An umbrella policy will pay for your legal expenses and protect you if you lose the case. If you win, an umbrella policy would cover your lawyer’s fees.
If you’re sued and you lose, the judge could award the plaintiff an amount that exceeds what you currently have. In this situation, the judge will usually allow the plaintiff to go after your future earnings until they receive what they’re owed. If you have an umbrella policy, the insurance company will pay so your salary isn’t garnished for years to come. In other words, an umbrella policy covers your future earnings as well as your current assets.
When Is It Worth It?
It’s easy to be held liable for something that happened on your property – that’s why umbrella insurance is so popular. If you don’t own a home, have little to no net worth and don’t keep any dangerous equipment on your property, you can probably do without umbrella insurance. However, most people should consider buying a policy. Dan Green, founder of Growella, said umbrella insurance is necessary if you fit one or more of these categories:
- People who own (or rent) boats, cars or other vehicles
- Coaches of youth sports
- People with dogs or dangerous pets
- People who host guests in their home or on their property
- Anyone who owns rental properties
- People who talk about other people or business
- People who volunteer their time and services
Many of these activities increase your chance of being involved in a lawsuit, even if they might seem harmless. Why buy more insurance just because you have a dog? You won’t ask that after your sweet Golden Retriever runs out of the house and bites someone, leading to a lawsuit.
“Umbrella insurance is a must,” Green said. “It provides protection against claims and lawsuits from accidents you’ve cause and shields your future income from garnishment.”
Green says a $1 million policy is sufficient for most people and only costs $200 a year (about $16 a month). It’s one of the most affordable insurance policies you can buy – less than the price of a few lattes.
Financial planner Clint Haynes CFP® of NextGen Wealth said he recommends umbrella insurance to almost all of his clients, especially those with higher salaries. He says most people should start with a $1 million policy and only buy more if their net worth increases.
Where To Buy It
In general, you can buy an umbrella policy from the same insurance provider you use for your other insurance. Call your agent to get their rates and see if you can get a discount for bundling. Your agent can also see whether it makes sense to stay with your current carrier or if another company will have a better price.
Umbrella Insurance protects you when you’re sued after an event that occurred at your come, in your car, or because of something you did. So you really can’t go wrong with umbrella insurance, especially in our current climate that loves lawsuits.
Article By: Zina Kumok
Source: Money Under 30