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What An Umbrella Policy Can Do For You

September 21, 2011

yellow umbrellaIt is often said that proper insurance can keep a bad day from turning into a bad life.   A personal umbrella policy may do just that.  Lawsuits are prevalent today and since no one can predict the size of a court awarded settlement to an injured person, umbrella policies are an essential part of your insurance protection.

Umbrella policies are sold to protect over and above your underlying insurance policies such as auto, home and boat, in the event of a claim.  If your underlying policy limits (your auto or home insurance) are exhausted, the umbrella kicks in and adds additional coverage.  It pays more money toward a claim, to protect your assets and future earnings.  Umbrella policies can also dip down to pick up coverage that did not even exist in the underlying policies.  These could include claims of false arrest, libel, slander and invasion of privacy.

Most financial advisors require an umbrella policy as one of the primary foundation blocks of any sound financial plan.  After all, there is really no sense in building your wealth if you have huge gaps in your defenses that could let it all slip away.  Umbrella policies are sold in increments of $1 million dollars and typically range between $1 million – $5 million.  Even if you have less than $1 million in assets, you should consider an umbrella as a way to protect your assets, like your home and your future earnings.  If you are sued, the court could demand a judgement in excess of the coverage you have on your auto and home insurance policies.  Defense costs, even if you win your case, can be financially devastating.  An umbrella policy can absorb the cost of your legal defense.  A $1 million umbrella policy is suggested for people with annual earnings up to $100,000 or up to $1 million in assets.  Umbrella policies typically cost around $200 a year for $1 million in coverage.  Each additional million runs around an additional $100.  Additional charges will apply for youthful drivers, additional properties, additional cars, boats, and motorcycles.

The premium for an umbrella policy can be offset by carrying higher deductibles on your auto or home policies.  Call your insurance professional today and ask for a coverage review.

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