Thursday, February 19, 2009

Buy An Umbrella

Tip #73- Buy An Umbrella. An umbrella insurance policy, that is. If you have any significant amount of assets or sometimes even if you don't, make sure you also have an umbrella insurance policy. Insurance is one of those products that is often described as a “necessary evil” – something you don’t want to buy but feel that you have to. In addition to health insurance, some of you have life insurance, car insurance, and renters or homeowners insurance. But how many of you have an umbrella policy? An umbrella policy does what it sounds like it does, it covers you over and above your other policies, like an umbrella. In this recession, the last thing I like to write about is how to spend more money. However, just like the famous saying that it takes money to make money, it also takes money to protect your money. And that’s what an umbrella policy does. It protects your money.

For example, you may have car insurance with coverage of $100,000/$300000, which means the car insurance policy will cover $100,000 per person for liability up to $300,000 if you cause a car accident. But what if the accident you cause sends someone to the hospital with life threatening injuries? Will $100,000 cover their hospital stay? Probably not. And even if it does, the person will likely sue you for compensatory damages, in other words, pain and suffering. And that could go into the hundreds of thousands or even millions of dollars.

Or suppose someone slips on the ice on your walkway while coming over to visit you? He breaks his back and can no longer work. He can sue you for loss of wages for his lifetime. That will surely go into the hundreds of thousands of dollars. Your homeowner’s policy may only cover $100,000 of that and they could go after your other assets.
If someone causes an accident and you are hospitalized for a long time with extensive injuries, then if the other driver doesn't have enough insurance or assets, your umbrella policy will cover you after you have utilized the maximum amounts on your other insurance policies.

For either of the first two cases, if you have an umbrella policy, the person who sues you will probably try to get the maximum out of your policy. And he/she will most likely be happy with that. If you have no umbrella policy, the person will go after your homeowners or car insurance policy and if that isn’t enough, he/she could go after your assets – such as the money you have saved in a bank account or even your home. Unfortunately, lawsuits are increasing in this country. And that is pretty scary. It’s so scary that I think it’s worth the $150 per year to have an umbrella insurance policy covering you for up to $1 million dollars. It’s money that you wish you didn’t have to spend, but will be happy you did if you need it. ***

In Real Life (IRL) – I want to relay a sad and scary story that happened to some friends of ours last week – a husband and wife with three young children. They called us up a few days ago and told us they had just been on vacation. While they were on vacation, they rented a car. The husband was driving and he turned his head for a moment and he crashed into the car in front of him, which hit the car in front of him, which hit the car in front of him. All told, I believe four cars were involved in this accident that my friend caused.

Now here is the sad and scary part. Four people had to go to the hospital as a result of this accident. And one of them was a child. And the child needed a plate put into his skull. It is sad beyond belief that this child’s life is changed forever. And it is scary for this family that we’re friends with because he only has coverage on his automobile insurance for $100,000 per person up to $300,000 total. And I’m pretty sure a hospital stay for a person getting a plate put into his head is going to run more than $100,000. And I can pretty much guarantee that this child’s family will be suing someone for pain and suffering that this child will endure for the rest of his life. This does not even take into account the other people who were also injured in the crash and the cars that were damaged.

My husband works in property/casualty insurance so our friend was calling for some advice. The first thing my husband asked was whether our friend has umbrella insurance that will cover him once his automobile insurance is maxed out. The answer was, “No.” After giving him some advice, my husband hung up the phone and said, it’s possible that one or all of these people might go after our friends’ assets, including their house. Depending on whose name is on the house, a lien could be put on it (which means it wouldn’t be taken away until this couple sells the house or they die) or it could be taken away. Of course there are other scenarios, too. The people injured could go after the car rental place or any of the other cars that hit them. Or as my dad says, they will probably go after whoever has the deepest pockets. Who knows how it will play out? What I do know is that if our friend had an umbrella policy, he would have fewer worries.

***As is true with all of my posts, what I write here is my opinion only. I am not a financial advisor or an insurance agent. Speak with your insurance agent and/or financial advisor to see if an umbrella policy is right for you


Beth said...

Thanks for all this great info! I linked you up on my blog today!

Christine said...

I just read ALL your postings, WOW!
Nicely done.
Good information.


Michele said...

@Beth, thanks for linking me in your blog. That's the first time anyone has done that!

@Christine, wow, you read all of my posts? You probably know me better than some of my friends do! Thanks!

Scribbit said...

I've heard this before--maybe I should look into this.

Sharon said...

I just paid my Umbrella Insurance for an extra 1,000,000.00 in coverage. So worth it. Thanks for sharing. I'm so sorry for all involved. I'm sure it hasn't been easy for your friends, minus the expenses.

Michele said...


Glad to hear that you got the umbrella insurance. Unfortunately in this sue-happy country, it seems like a necessity. Hopefully, you won't need it!

nankie said...

Thanks, I am going to look into that.
I know we have high limits on our car insurance, but I'm pretty sure we don't have any umbrella policy.
Another kind of insurance we've been considering is long-term care insurance. But I must confess, reading about insurance makes my eyes glaze over, so I haven't researched it too much yet.