Consider umbrella insurance

Protect what you've built with a secondary insurance policy.

Umbrella insurance might not be a dinner table topic, but it’s worth a discussion if you’re interested in extra asset protection. It’s estimated that one in five people with considerable wealth opt out of such coverage – leaving them vulnerable and risking what they’ve worked hard to build.

An umbrella policy provides extra liability coverage beyond what’s included in your base homeowners, auto and boat policies, for example. But there are other benefits. An umbrella policy can protect you from significant financial loss from unexpected events.

What is an umbrella policy?

An umbrella policy provides excess coverage above what’s offered by your standard insurance, usually in the range of $1 million to $5 million of additional coverage.

Considering over 6% of civil cases that go to a jury trial are awarded more than $1 million in compensatory and punitive damages, if you have assets that would be at risk, an umbrella liability policy will provide additional protection – and peace of mind.

While umbrella insurance can offer additional liability coverage, it’s not identical to excess liability coverage, which gives you higher limits on your policies’ liability coverage. Umbrella policies offer you expanded coverage, including coverage for legal expenses and protection for dependent children.

As it pertains to legal expenses, an umbrella policy will cover anything above a standard policy amount. It will also cover legal fees if someone sues you for libel or slander and may pay out lost wages for appearances at legal proceedings.

In the event someone sues you for being injured at your property (a primary residence or a rental property you own), an umbrella policy can help protect your assets, like your home, vehicles and investment accounts.

If you have dependent children, especially those driving or operating watercraft, an umbrella policy would cover any accidents they cause as well.

What isn't covered?

Umbrella insurance certainly has its benefits, but you should be clear on what the policy doesn’t cover.

If you’re a business owner and have significant assets to cover, it’s wise to have additional coverage, but a policy would not cover any lawsuits related to your business, only your personal assets. (There are commercial umbrella insurance policies that you’d have to purchase separately to cover your business.)

When it comes to vehicles, if you’re participating in any high-risk behavior, like drag racing or off-roading, an umbrella policy wouldn’t cover related incidents. It also doesn’t cover all types of vehicles; farm tractors, trailers or those exceeding a specified weight limit (usually 12,000 pounds) are typically not covered.

In the same vein, umbrella policies don’t cover damage to your own car or property or excessive healthcare costs. For those, you’d have to purchase separate, more comprehensive policies.

Who needs umbrella insurance?

The first test for determining if you might need an umbrella policy is if your net worth exceeds the maximum liability coverage on your standard insurance policies. The umbrella policy would protect your assets beyond that if you’re found liable for an incident.

Some think an umbrella insurance policy is just for the wealthy, but there are other factors that increase the likelihood of needing coverage. If you have a long daily commute or drive regularly during peak traffic hours, you’re at higher risk for an auto accident and therefore could benefit from additional coverage.

From a personal injury viewpoint, if you frequently host house guests, have a dog or have a pool or other feature at your home that carries higher potential injury risk, an umbrella policy is worth considering.

Like all insurance policies, you should consult the policy details to ensure what’s covered or not. Each policy is different, as are your needs for protection. Additionally, because an umbrella policy is secondary insurance, there are underlying insurance requirements before you’re approved to purchase a policy.

If you think you and your family need more asset protection, have a conversation with a trusted insurance advisor who can help guide you to the best choice.

Sources: trustedchoice.com; garvinlegal.com; cnbc.com; investopedia.com; insurance.com

Insurance offered through the Raymond James Insurance Group, an affiliate of Raymond James & Associates, Inc. and Raymond James Financial Services, Inc.