Umbrella insurance is essential for most people pursuing Chubby FIRE.
Everyone makes mistakes. Or sometimes we get blamed for mistakes that aren’t really our fault. That’s why we have insurance to protect us, our families, and our property.
Problem is, our insurance isn’t perfect, either. And there are so many things likely to go wrong at least once in your life. Your dog could bite someone, you could get in a car crash, or a medical emergency can happen. Insurance gives you an amazing sense of safety, but sometimes it isn’t enough.
That’s where umbrella insurance comes in. An umbrella policy can save you from financial ruin.
What is Umbrella Insurance?
Umbrella insurance is a supplement to other liability policies most people already have. For example auto, renter’s, or home insurance. It’s for situations when your existing insurance can’t cover the medical, property, or legal costs.
So umbrella insurance is like another safety net to your assets.
For example, you cause a car crash and the court finds you responsible. Let’s say the damages are $500,000. Your insurance might cover $200,000 and that’s it. That’s when the umbrella policy comes into play. Your umbrella coverage could take care of the other $300,000.
“The main purpose of an umbrella policy is to protect you and your assets from the financial fallout of certain unforeseen events,” explains Matthew Kenigsberg, CFA of Fidelity.
But unlike other insurance policies, it covers things like false arrest, libel, slander, and liability coverage on rental units you own.
Umbrella insurance is beneficial to almost anybody. A lot of people ask if umbrella insurance is worth it. The extra cost of adding on an umbrella policy might scare you away, but it is definitely worth the price.
Here are 3 reasons to get umbrella insurance.
1. It’s Relatively Cheap
As mentioned earlier, umbrella insurance comes in handy when you need more money than your coverage covers. There’s an extra price tag when you want to add an umbrella policy to your existing insurance.
According to the Insurance Information Institute, umbrella policies typically cost between $150 to $300 for a million dollars of coverage. That’s so cheap for such amazing coverage. If you ever want to get more coverage from your policy, you could do so at a cheaper price.
Most insurance providers will require that you have a minimum of $250,000 of liability on auto insurance and $300,000 of liability on homeowners insurance before you qualify for umbrella insurance.
Many people disregard umbrella insurance as they don’t think they’ll ever need the extra coverage. A lot of great insurance deals can cover large costs.
When people think about car crash costs, they think about the damage done to any vehicles involved and medical costs. However, it’s a lot more than that. Vehicle damage, medical costs, property damage, time off work, court costs. It adds up quickly and can drain typical coverage.
Car crashes cost an estimated $518 billion a year in the U.S alone. If you don’t want to pay up to millions of dollars out of pocket, then you need an umbrella policy to protect you.
2. It Gives You a Lot of Protection
Umbrella insurance can save your financial life. The car example mentioned earlier is just one of many situations where an umbrella policy could save you from financial ruin. There are many other cases where umbrella insurance can be useful:
- Your dog bites someone. Dog bites typically come with medical costs and a lawsuit. These cases can notoriously run your policy dry. With umbrella insurance, you’d get everything covered.
- You or your children get into a car crash. Along with property damage and medical costs, those at fault often have to pay the salary of any victims if they can’t return to work. The costs of a bad car crash can be horrendous. Your auto insurance could cover some of these costs, followed by your umbrella policy.
- You get in a boating accident. Boating accidents are very expensive when property is involved. Umbrella and boat insurance can cover all costs.
- A houseguest trips on your property and sues you. Medical bills plus pain and suffering can exceed your homeowners insurance.
- You get sued for slander. Most insurance policies don’t cover slander lawsuits. If you post comments online or you have an active voice in your community then you could be a target for a slander lawsuit.
- You get injured. People think their current healthcare would take care of any medical emergencies. However, that may not be true. Fatal diseases and illnesses such as cancer or rare diseases can cost people millions. Millions of dollars that average insurance doesn’t cover.
Along with countless other cases.
While umbrella insurance covers many scenarios, there are also cases that it doesn’t cover. Some of those being:
- Damage to personal belongings
- Business losses
- Criminal acts
- Written/oral contracts
- Damages due to nuclear radiation, war, and terrorism
- Transmittable diseases such as herpes or HIV
If you have a specific question, talk to an insurance agent.
3. It’s Suitable for Almost Everybody
Almost everybody would benefit from an umbrella policy. Countless scenarios could happen to any one of us that’ll demand a lot of coverage.
If you fit into one of these categories then you should get umbrella insurance right away:
- You have significant savings or assets. You’d sleep well at night knowing that everything won’t need to be sold or used up. Umbrella policies can literally give you millions more in coverage. That sense of security is very comforting.
- You host big parties. Party hosts are often the target of lawsuits due to how easy it could be to win a case. People can sue you over problems with the property or even personal disputes. If you throw big parties, then you’re constantly putting yourself at risk of being sued over something petty.
- You want to prevent a potential loss of future income. Umbrella insurance can give you the funding to fight back against anything that can hurt your reputation.
- You own a business. Many things can go wrong with a business. Some of them may end up being your fault, and some of them are just out of your control. You and your business are at risk of losing a ton of money. At least 53% of businesses will be involved in at least one lawsuit.
- You’re a figure in the community. Or just straight-up famous. Prominent figures are targets for lawsuits and slander cases. Costs are often extremely high when community figures are involved in a legal battle. Community figures are targets for insurance scams and crimes. For example, someone might try to get hit by your car or break into your home.
- You coach youth sports. Coaches can be sued for a variety of reasons. An angry parent is the last person you’d want to battle in court. Especially without much insurance coverage.
- You ski, surf, or hunt. Many things can go wrong during these activities. These pastimes are notoriously dangerous as well. There’s a .002% chance that you will get injured doing one of these hobbies. The medical costs go through the roof as most injures are severe.
- You own a swimming pool or trampoline. Pools and trampolines can be very dangerous. You could be completely not at fault but a lawsuit could still be possible.
- You own property. Especially if you’re a landlord.
- You own a dog of a restricted breed. Your dog could possibly bite someone and that would be a huge lawsuit.
- You have a teen driver. Teens are 3 times more likely to be involved in a car accident. If your teen gets in a serious car accident, your normal insurance might not be enough to cover it.
- You own a boat. The U.S. Department of Homeland Security states that “In 2019, the Coast Guard counted 4,168 accidents that involved 613 deaths, 2,559 injuries and approximately $55 million dollars of damage to property as a result of recreational boating accidents.
- You expect your income to go up. Or if you expect your net worth to significantly increase. Umbrella insurance is especially great for young people just starting out in their careers.
You likely fit in one of these categories. This means that if you’re wondering if umbrella insurance is worth it, it most likely is.
Where to Get Umbrella Insurance
Now that you know why getting umbrella insurance is a great idea, you have to know where to get it. It’s possible to get umbrella insurance from a different insurance company than the one you currently get coverage from. However, this might be a bad idea as any change to your coverage might affect your eligibility for umbrella insurance.
You can bundle umbrella insurance with your current insurance provider’s plan from the same company.
Many major insurance providers also offer umbrella insurance but you should definitely ask an agent about your options.
The Bottom Line
Overall, an umbrella policy could save you from financial disaster. Umbrella insurance is fit for everybody. Getting a million dollars of extra coverage at a cost of about 100 dollars is a no-brainer.
Talk with your insurance provider and ask them all about getting an umbrella policy!