Umbrella Insurance; Why You Need It.

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During the decades that the city hosted the retirement seminar, I added a brief discussion on umbrella insurance. Considering the importance of this insurance coverage and its low cost, I was always concerned about how few officers in the room had the coverage. This insurance coverage can be the difference between complete asset security and losing everything you own.

Your Auto and Home Policies without Umbrella Insurance

First, knowing how much insurance coverage you currently have on your auto and residence is essential. The most common auto liability coverage is $100,000/300,000. For home coverage, it is $250,000.

Those figures mean that you are covered for $100,000 in damages that your driving negligence causes to a single person and $300,000 in “aggregate” coverage for multiple people injured in the same accident.  Suppose you have $250,000 in homeowners liability coverage. Therefore, that is the limit your insurance company will pay for damages your negligence causes to someone injured in your home or on your property. You are personally liable for any excess damages.

Consequences of Inadequate Insurance Coverage

I have seen it time and time again. Far too many of my clients are lulled into thinking they have enough insurance. Consequently,  $100,000 sounds like a lot until you injure someone in the hospital for a week. Or someone trips on your garden hose and fractures their ankle.

Two clients most often come to my mind. One was stopped at a stop sign in Park Ridge. However, it was night, and Park Ridge had low stone posts marking street names. While he was inching up to see the sign, an older woman stepped off the curb, and he bumped into her. She fell back, hit her head, and died.

My other client’s young daughter played in the house with her friend from next door. The friend tripped on a Playstation cord, hit her head on the coffee table, and suffered brain damage.  

Unfortunately, both clients had average coverage limits, and neither had an umbrella policy. Both had over $600,000 in net asset worth. They lost it all.

What is Umbrella Insurance? 

Umbrella insurance is personal liability insurance that covers claims exceeding your auto, homeowners, and watercraft policy limits.

Umbrella insurance provides $1 million liability coverage on each vehicle and your home for one annual premium cost, averaging $200-$300 a year. You can get up to $10 million in coverage. There is no good reason not to have this coverage.

ERISA and Your Deferred Comp

The Employee Retirement Income Security Act (ERISA) protects employee retirement benefits and usually protects from lawsuits and judgments from creditors. However, government-provided plans and IRAs are not covered by ERISA.

Now would be an excellent time to consider your net worth by adding up your home equity (after the mortgage balance), savings, investments, deferred comp, and other assets. And make sure you have an umbrella policy to cover your total net worth.

Contact your insurance agent for umbrella liability coverage, or contact my office for a referral to an insurance broker to locate the best coverage and premium for your situation.

Living Trusts

At the end of your life or incapacitation, they risk Probate if you have property, investments, or bank accounts in your name.

  • A Will = Probate. The rule is that no one can legally sign your name. Therefore, all assets in your name are subject to the Probate process, which averages 18 months and is costly.
  • A Living Trust avoids Probate.
  • Your financial accounts, life insurance policies, and deferred compensation accounts can name your Living Trust as beneficiary, subject to essential tax considerations.
  • A Living Trust estate plan includes Health Care and Financial Power of Attorney documents. It also consists of a Last Will and Testament.
  • A Will is necessary for the guardianship of your minor children. It also transfers assets in your name out of Probate.
  • A Living Trust contains a No Contest provision and beneficiary Asset Protection clauses.