Should You Have Umbrella Insurance?

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“Be still, sad heart, and cease repining;
Behind the clouds is the sun still shining;
Thy fate is the common fate of all,
Into each life some rain must fall.”
– Henry Wadsworth Longfellow

Longfellow had it right: Both literally and metaphorically, we all get rained on. If it’s the kind that comes from the sky, protect yourself with an umbrella. But if it’s the kind that comes from a court, you might try umbrella insurance.

What’s umbrella insurance?

Umbrella insurance is a broad policy that kicks in where your other insurance sputters out. It can protect your life savings from all kinds of claims – including some your auto or homeowner policy don’t.

In the video below, Money Talks News founder Stacy Johnson and insurance agent Catherine Grady explain in 90 seconds how umbrella insurance works and why you might consider it. Check it out, and then read on for tips on umbrellas, as well as ways to cut costs on any kind of insurance.

As Stacy mentioned in the video above, an umbrella policy can be a comforting addition to your existing coverage, offering $1,000,000 or more in additional liability to your existing car and home policies, as well as protection from things your existing policies won’t cover. The cost isn’t tremendously expensive: For the minimum $1,000,000, the rule of thumb is about $1 a day. But keep in mind that this coverage also has limits. Situations where it may not pay:

  • Illegal activity (driving drunk)
  • Deliberate high risks (drag racing)
  • Intentional harm (taking a baseball bat to your pesky neighbor’s Porsche)
  • Business-related wrongdoing: Whether self-employed or working for someone, work-related protection often requires separate coverage.

On the other hand, it might make sense if you worry about:

  • Slip and fall accidents on your property
  • Damage caused by your dog (not covered by many homeowners policies)
  • Slander, libel, and defamation lawsuits
  • Judgments that exceed the limits of your auto or home policies

Policies vary by company and state, so always get specifics in writing and make sure you understand every aspect of your coverage.

While the umbrella policy itself is fairly low priced, you might have to spend more on your existing coverage before you qualify. If you want to get an umbrella from Geico, for example, you’ll have to have a car policy with a minimum of $300,000/person for bodily injury and $100,000 for property damage, plus a homeowners policy with at least $300,000 of liability, plus significant liability coverage on your boat if you have one. Many insurance companies also require that you purchase all your coverage from them: In other words, you can’t have your car policy with company A, home policy with company B, and an umbrella from company C.

Who should carry an umbrella

The agent Stacy interviewed in the video above suggested that practically everyone should have umbrella coverage. After all, she reasons, it’s not that expensive, and even if you don’t have a dime, it’s still possible for someone to get a big judgment against you, then force you to pay it off over the rest of your working life.

Still, the lower your net worth, the less you need this type of coverage, especially if even a $1 a day is more than you have available. But there are people who should definitely consider it:

  • You’re rich: Obviously, the greater your net worth, the more protection you need.
  • You’re ostentatious: If you’re driving a Bentley convertible, don’t be shocked when the guy in the Ford Focus you rammed gets whiplash and sues.
  • You do risky stuff and encourage others to do the same: You have the neighborhood kids over to jump on your trampoline, use your diving board, and go for a spin on your ATVs.

Ways to save on insurance

No matter what kind of insurance you pay for, pay as little as possible. Here’s how.

  1. Raise your deductibles. It sounds counter-intuitive to offer to pay more in case of an accident – how does that save anything? But it’s pretty simple: High deductibles mean lower premiums. As Money Talks founder Stacy Johnson is fond of saying, “If you insure yourself so you’ll never lose a penny, you’ll probably end up without a penny to lose.” If you can afford to pay for the first $1,000 of loss, see how much you’ll save with a $1,000 deductible on your car and home policies: It could be 15 percent or more.
  2. Don’t rely on your agent. Trust, but verify: Insurance agents can provide valuable information and help you understand the policy, but they’re also trying to make money by maximizing your coverage.
  3. Understand your policy. Insurance is confusing, but you can’t know where you can save if you don’t comprehend what you have. If you don’t understand, ask. Then make notes about what (and who) is included and excluded, what limits you have, what the law requires, and what you’re paying.
  4. Never stop shopping. Insurers depend on your loyalty and laziness when they regularly raise rates. Every couple of years, see if you can do better. And while you’re at it, make sure your coverage is adequate. Your net worth is (hopefully) improving: Make sure your coverage is keeping up.
  5. Always ask for discounts. Don’t assume your insurer is always giving you the best rate you can get. Memberships (AAA or AARP, for example), a clean record, safety devices, and many other things can get you a lower rate: Ask.

And speaking of shopping, you don’t have far to go to do it. Click here to go to our insurance search and see if you’re getting a good deal!

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