Imagine loosing everything you have worked for, due to a lawsuit. Amy Fontinelle explains below how an Umbrella policy can help you protect your hard work.
By Amy Fontinelle | March 03, 2009
It’s impossible to predict whether you might lose a lawsuit resulting from a car accident or an accident on your property. Nor is it possible to predict the amount that might be awarded to the winning party, an amount that you would be responsible for paying. To protect yourself against the possibility of devastating financial loss from these unforeseen events, you may want to purchase an umbrella policy.
What Is an Umbrella Policy?
An umbrella policy protects your existing personal assets and future personal assets (like wages, your inheritance or that lottery you’re planning to win) against the cost of losing a lawsuit over a car accident or an accident on your property. If you were to lose such a lawsuit, you would likely have to pay the winning party for costs such as medical expenses and lost wages, which can quickly become very expensive.
An umbrella policy picks up where your auto and homeowners insurance policies leave off. It has a high deductible because the deductible is designed to be met by your other policies. Expect to pay around a few hundred dollars a year for this coverage.
Things That Increase Your Risk of Being Sued
If you always take public transportation and don’t own any property, you are much less likely to need an umbrella policy. On the flip side, there are a few things that increase the likelihood of requiring an umbrella insurance policy:
- A long commute
- Driving during rush hour, when drivers are more likely to get into an accident
- Your home has a swimming pool
- You own a dog
- You frequently have guests over
The Bottom Line
Just because you aren’t at high risk of being sued doesn’t mean you are at no risk. Even if you are very careful, umbrella insurance can be thought of as bad luck insurance. The safest course of action is to be insured. And remember that as your financial situation changes, you may need to add more coverage in the future.