Protect Yourself From Sharks
Guest Article By Christina Lynn, CDFACEP
We live in a litigious society. Lawsuits fly around courtrooms across the United States. Why? Because sharks smell blood. When you rear-end someone, the shark (the other driver) may smell blood (your German car). Raising an an eyebrow, interest peaked, the shark dials the 1-800-number on the billboard sign in front of him that reads, “Injured in an auto accident? Call our bulldog personal injury attorneys. We fight for maximum compensation!”
$1,000,000 legal settlement later, your nest egg is wiped clean. It’s not fun to restart your retirement plan from scratch.
For better and for worse, the United States protects the rights of an individual to sue another individual, or business, for wrongdoing. Even if there is no foul play on your part, you can’t prevent a lawsuit from happening.
Convinced you can win the lawsuit? Your wallet will still forfeit a hefty sum in attorney fees.
How can you protect yourself from sharks? Get yourself an umbrella insurance policy.
Umbrella Policy Defined
A personal liability umbrella policy (PLUP) is one of those products that the wealthy should appreciate being up-sold on. An umbrella policy can save them from losing their entire net-worth in the worst-case-scenario.
Is It a Hoax?
Wealthy people may feel annoyed that they are constantly being up-sold on products, such as insurance. They may think, “I already have homeowner’s insurance, car insurance, health insurance, and life insurance. Why would I would I need more insurance?”
The Wealthy Turtle Blog contributor, Mike, explains in this article when umbrella insurance is used: “Your typical auto or homeowner’s insurance policy will only cover you up to your personal-liability limit which is typically between $100,000 and $300,000, but settlements and legal fees could easily push your liability higher.”
As you can see, it’s not a hoax. Umbrella insurance will come to the rescue, protecting your retirement plan, if an expensive accident happens. When a homeowner’s or car insurance policy caps out at paying $100,00-300,000 on your behalf, your umbrella insurance policy will fly in to save the day for the mounting medical bills or lawsuits that exceed that cap.
Avoid the Worst-Case Scenario
What is the worst-case scenario? Financially speaking, it could be if a client with a net worth of $1 million were to be sued for $1 million by a wily fox who knew they had a large net worth. If the wily fox won the lawsuit, that client would lose their entire net worth over something as simple as rear-ending the wrong person.
Miriam Caldwell gives a great example in this article on The Balance, another way that an umbrella insurance policy can come to the rescue–protecting your nest egg. She says, “It is easy for medical bills to add up to more than your coverage limits, especially if there is more than one person involved in the accident.”
So, whether it is a shark suing you for an outlandish amount for injury-related compensation, or an accident you are responsible for has unexpectedly high medical costs, an umbrella insurance policy is a simple solution to protecting your nest egg.
Who Can Get an Umbrella Insurance Policy?
An umbrella policy is generally only available to those who already have homeowner’s and car insurance policies. If you are a renter, you may not be eligible for an umbrella policy.
Review the policies offered at your place of employment. Wisconsin Public School Employees are offered optional umbrella insurance coverage, siting this sad example to encourage umbrella insurance coverage:
“A young woman ran a stop light and collided with another car, killing an adult and child. The courts found her negligent and ordered her to pay the “wrongful death” limits in Wisconsin of $850,000. The woman had an auto policy with liability limits of $500,000 per claim, leaving her with an uncovered loss of $350,000. If this woman would have had a personal umbrella policy, it would have paid the remaining $350,000. Without it, she will have to pay it from her personal assets.”
Who Should Not Get an Umbrella Insurance Policy?
Caldwell points out in her article on The Balance, that “most people in their twenties do not need umbrella insurance.” Why? Usually people in their twenties don’t have many assets. They are just getting started on their careers, and loaded down with debt.
If you are in your twenties and have assets you want to protect, then you too should consider purchasing an umbrella insurance policy.
If you are beyond your twenties, but still have no assets, then you may not need umbrella insurance.
If you own a business, first make sure you have business insurance. The umbrella policy can kick in after your business insurance is exhausted. Do you think this strategy is overkill? To quote Caldwell’s article one more time, “Judgements can be a lot bigger for businesses than they would be for individuals. One small accident on your business property may be enough to shut down your business permanently.”
How Much Coverage Do You Need?
Umbrella policies are designed to be an extra layer of protection on top of those basic policies. Have at least enough protection to cover your entire net worth. Don’t let the fox into the hen house.
A common amount to start with is $1 million in coverage, but it is easy to qualify for more, if your net worth justifies it.
Is An Umbrella Policy Worth It?
An umbrella policy is relatively inexpensive, and it could be the best investment you ever make. You can think of it as a backup insurance plan. The first line of defense will be the homeowner’s or car insurance policy. However, if those two don’t cover the damages or the lawsuit, that is when the umbrella policy activates.
I made an appointment with my property/casualty insurance agent, and restructured my home and car insurance. He tweaked those two policies enough, so that I could add a million-dollar umbrella insurance policy without paying any more money.
To give you an idea of a ballpark figure, the Insurance Information Institute says in this article that “for about $150 to $300 per year you can buy a $1 million personal umbrella liability policy. The next million will cost about $75, and $50 for every million after that.”
What All Will An Umbrella Policy Protect Me From?
The coverage should be broad enough to handle scenarios that you least expect, which may be well beyond the scope of the basic homeowner’s and car insurance policies. For example, if you get sued for defamation of character, your umbrella policy will be there to help in your time of need. However, for situations like the defamation of character, which are not covered by the underlying homeowner’s policy, the client may need to pay a self-insured retention (SIR), which is comparable to a deductible.
You May Benefit From An Umbrella Policy
Do you consider yourself wealthy? Most of us don’t. Even so, you would hate to lose your life savings and your house because of one silly lawsuit or car accident.