What Is Umbrella Insurance and Do I Need It?

May 17, 2021

There are many reasons why you could end up on the receiving end of a lawsuit. Each year in the United States there are more than 40 million lawsuits filed!

Whether you are at fault in a car accident or someone slips and falls at your home, you should consider an umbrella insurance policy as a way to safeguard your future. It’s a unique way to protect your family and your assets. Read on to learn what an umbrella insurance policy is and why you need it!

Understanding an Umbrella Policy

You may be asking, ‘What is umbrella insurance?’ Think of umbrella insurance as a policy that kicks in when your other insurance coverage limits are not enough to cover damages after an accident.

As its name indicates, this policy is an ‘umbrella’ over the rest of your insurance coverage. If you were at fault in a car accident and damages to the other person exceeded your injury coverage, you may be at risk of going out of pocket to pay for other damages.

For example, if you have $250,000 in personal liability insurance and there is a judgment entered against you in court for $400,000, you would be personally responsible for the remaining $150,000.

This can create major issues for you when you don’t have an umbrella insurance policy.

You Have a High Amount of Assets

You should buy umbrella insurance coverage when you have a high number of assets. A typical American family has an average of $8,863 in banks and credit unions. When you have a much higher amount of assets than your insurance coverage levels, this can cause a problem for you later.

Do you own large amounts of stock or earn a high-income level? You may be collectible if a plaintiff earns an excess judgment against you after an accident. In the $150,000 excess judgment example above, it may not be collectible if you work part-time earning a low wage.

This analysis changes when you have assets and earn a lot of annual income. Depending on where you live, the state where an excess judgment is against you can have a big impact on your life.

You may have to sell stocks to pay off the judgment or have your wages garnished to ensure it is all paid off. When you have an umbrella policy, it would activate to cover the $150,000 so that you don’t pay it!

Concerns With Visitors to Your Property

You can’t afford to go without umbrella insurance coverage when you own property. Do you entertain at home a lot or own rental homes? If someone is hurt while at your property, it can be an expensive mistake.

Suppose you and your family decide to host an end-of-season party at your home for your son’s little league baseball team. While you and your guests are hanging out in your backyard, one of the kids trips on an uneven brick on the patio, breaks his arm, and must undergo multiple surgeries to fix his injuries.

In this example, the child’s family may sue you for negligence and recovery of his or her damages. These may include the damages for surgeries, pain and suffering, and recovery for future impairment.

These damage amounts can add up quickly and put you at risk of needing to pay for some of it out of pocket. An umbrella insurance policy will help ensure that you can avoid this situation!

Financial Responsibility for Other People

An umbrella insurance policy is a great way to protect you when you are personally responsible for the finances of someone else. A classic example of this is when you purchase a vehicle for your minor child.

When you buy the vehicle, you won’t be able to register the vehicle in your minor child’s name. This means that in the eyes of the law, even if you aren’t the one driving the vehicle, you are responsible for it.

If your child is at fault during a car accident, the other party may look to your insurance coverage to recover their damages. That’s because although the car wasn’t being driven by you, it was registered in your name. This means you are the legal owner of the car and can be responsible for what happens when it is being used.

You can keep yourself protected by having extra insurance coverage through an umbrella policy.

Exotic Trips and Other Hobbies

Do you like participating in activities like skiing, racing cars, or hunting? Even if you don’t regularly do any of these three things, if you like taking exotic trips or have any dangerous hobbies, you should consider an umbrella insurance policy.

These kinds of trips and hobbies can put you at serious risk of injuring yourself or someone else. Since these are dangerous activities, it can also mean that both the risk and extent of injuries can be high.

You will give yourself some peace of mind by increasing your insurance coverage with an umbrella policy to cover another person’s injuries in the event of an accident.

Should You Buy Umbrella Insurance Coverage Today?

An umbrella insurance policy can help you pay for extra costs that you’d otherwise be forced to cover directly out of pocket. Although the risk of being responsible for an excess judgment may be relatively low, it can be worth it to lessen this risk further.

If you’ve worked hard to build a strong financial future for you and your family, you shouldn’t risk some or all of it on being underinsured. At McMahon Insurance Agency, we have been serving the insurance needs of our customers since 1922!

Our experienced agents give our clients superior customer service so that each one’s personal needs are met. We will work together with you to find the best insurance coverage for your unique situation.