When to Consider Extra Liability Coverage
Investopedia defines umbrella insurance as “Extra liability insurance coverage that goes beyond the limits of the insured's home, auto or watercraft insurance. It provides an additional layer of security to those who are at risk for being sued for damages to other people's property or injuries caused to others in an accident.....". While this may seem to be an overreaction, we live in a time when people sue other people for more significant amounts of money than we have seen in years past.
Most homeowner policies and automobile policies offer an additional layer of coverage for personal liability. In general, this is sufficient to meet the needs of most people. However, there are specific circumstances when a personal umbrella insurance policy may make good financial sense. Some of these conditions include:
Small business owners – Personal umbrella policies will not help a business owner if they are sued for business related issues such as product defects, etc. However, these policies may be helpful in protecting the assets of the business if the owner is sued personally for incidents covered under the policy. For example, if someone fell at your home and sued you, a personal umbrella policy may help protect your business assets from being seized and liquidated to pay off damages. It is important to remember the limitations of these policies – they are extensions of homeowners, automobile, watercraft and other personal policies. They are not a business policy.
High net worth individuals – Those who have a high net worth including investments, expensive vehicles, investment property and a home that is high valued should always consider an umbrella policy. Accidents happen all the time and a single accident that occurs on a property can wipe out savings, cause the loss of assets and be responsible for other high-risk problems.
Before purchasing this extensive type of insurance it is important that the coverage options are carefully evaluated. Personal umbrella policies may help protect specific business or personal assets but have important exclusions, such as not covering business related lawsuits.