Why should I purchase an umbrella policy?

The great thing about an umbrella policy is that they offer a wide variety of liability protection.

Imagine this:

You are hosting the annual neighborhood Christmas party and one of your guests slips and falls on your icy sidewalk. They are severely injured, requiring a month of hospitalization along with substantial physical therapy. Before you know it, a lawsuit is filed and you are on the hook for a couple of million dollars in damages.

Unfortunately, your homeowners policy, like most typical policies, tops out at $100,000. Even if you had opted to up your coverage to $500,000 in liability coverage you are still responsible for a big chunk of money.

While many of us think that only the truly rich would need the protection that an umbrella policy offers, the truth is that people from all different walks of life and various income levels could benefit from the additional protection these policies offer.

Let’s have a quick look at just what a personal umbrella policy (PUP) offers. These policies provide liability protection over and above your homeowners and automobile coverage. Basically, this means that once your policy limits are reached, the PUP kicks in, an umbrella policy protects you when your homeowners or auto insurance just isn’t enough.

PUP policies are usually sold in $1 million increments ranging from $1 million up to $5 million. If necessary, and you have the means, specialty insurers can offer umbrellas up to $100 million.

It only takes one bad day

While the $100,000 to $500,000 in liability protection that a typical homeowners policy offers sounds like a lot, it would quickly be eaten up if you were responsible for a major auto accident or the target of a lawsuit due to an incident or injury at your house.

As an example, an uninsured driver in New Jersey hit a police officer who was conducting a traffic stop. The police officer was awarded $1.2 million.

In addition to any settlements from a lawsuit that you are responsible for, you will also need to pay the legal fees for your defense, which can quickly add up. A PUP covers these expenses.

While roughly 85 percent of PUP claims are related to auto accidents, umbrella policies offer protection for your home as well. Slips and falls are more common than you imagine and accidents can often occur on trampolines or pools.

PUPs offer a wide variety of protection

The great thing about an umbrella policy is that they offer a wide variety of liability protection. If you rent a boat, car or even an ATV while on vacation and end up injuring someone or destroying their property, an umbrella policy will help pay for any liability claims as well as cover your defense costs, up to the policy limits.

In the age of social media, a PUP offers protection that you probably thought you would never need, but just might if your teen turns ugly on Facebook. An umbrella policy offers protection against lawsuits for slander or defamation of character.

It doesn’t have to be your teen causing issues, if you like to blog about touchy subjects or rant it up on Facebook you could possibly find yourself on the wrong end of a lawsuit. Even if you eventually win, the legal costs will be substantial.

When it comes to these types of lawsuits its important to remember that if you lose, it’s not just your bank account that will be drained. All of your personal assets will be at risk, including retirement funds, investments, your home, vehicle and even future earnings.

PUP policies offer peace of mind at a very reasonable price. Prices will vary depending on a number of factors but in general, expect to pay around $200 a year for a $1 million in coverage.