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 This week’s column is provided by American Express Financial Advisors How an Umbrella Policy Can Protect Your Assets Standard homeowner’s, renter’s and auto insurance policies provide a moderate degree of protection against certain types of personal liability. However, this essential basic insurance coverage may not be enough to adequately protect your assets from a potentially devastating lawsuit. Basic liability insurance helps protect your assets in the event you accidentally injure another person or cause damage to someone else’s property. If there is a lawsuit, the policy will generally cover your legal defense fees, as well as any medical or property claims you are found legally responsible for, up to the limits of the policy. How the Umbrella Works You may want to consider purchasing a personal umbrella policy in conjunction with your other liability policies. Contrary to popular belief, an umbrella policy isn’t just for the affluent. Umbrella policies pay $1 million, $2 million and sometimes even $5 million or more of a claim, on top of what a basic policy will cover. Coverage is affordable: premiums are usually $200 to $300 a year for $1 million worth of coverage. Umbrella liability insurance usually carries a deductible of $300,000 or more and is not designed to kick in until all of your other policy limits have been exhausted. Typical umbrella policies require you to have homeowners and auto liability insurance equal to the amount of your umbrella’s deductible. How Much to Buy When people buy umbrella policies, they often don’t buy enough coverage. When you are deciding how much to purchase, obviously you would want to get enough to protect the assets you have. But it’s important to remember that a judgment could turn out to be more than your current net worth. For example, with $1 million worth of assets, you might think you should buy a $1 million policy. But what if a judgment is made against you for more than that amount? In that case, you could lose much of your current assets and any assets you may gain in the future. Your Liability Exposure Another thing to consider when deciding whether or not to purchase an umbrella policy is your liability exposure, which may change at various times during your life, because of certain lifestyle factors, such as a great deal of travel or entertaining, operating a home-based business or even having teenage children who drive. You also may want to try to purchase your umbrella, liability, homeowners’ and automobile policies from the same company. By doing this you may receive a significant premium discount, and you avoid the confusion of dealing with different insurance companies. If you have questions on other ways to protect your family’s financial position, speak with your financial advisor or a qualified insurance agent. August 15, 2002
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