Umbrella Insurance Policies: Why You Might Want That Extra Protection
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Jul 5th 2013 5:00AM- A $1.2 million settlement in New Jersey where an underinsured driver hit a policeman who was completing paperwork at a traffic stop. The driver had to pay legal fees for his defense as well as the settlement.
- $1.76 million was awarded to a mother and her 8-year-old child in Florida after a wave runner accident injured both of them. The mother needed corrective surgery after the initial injuries were treated.
Then there's coverage for incidents you may not have even considered, such as accidents while you're driving in another country, or while you're on vacation and have rented a boat or Jet Ski.
That may sound unlikely, but it's not unheard of. In 2009, a high school student sued four other students and their families for $3 million because of derogatory comments the other students made about her on Facebook. While the lawsuit was eventually dismissed, reaching that verdict took two years and required considerable expenditures by the families. An umbrella policy can cover expenses related to such lawsuits.
You Have More to Protect Than You Think
You may be assuming that if you don't have $1 million to lose, you don't need an umbrella policy. Unfortunately, if you are sued by someone who falls down the stairs at your home or whom you injure in a car accident, you can be sued for more than just what you have in the bank.
Your retirement funds, investments, savings and even your future earnings are at risk if a judge allows someone to garnish your wages to pay off a settlement. In some states, the equity in your home can be part of the judgment and you would be forced to sell your home to pay someone who sues you.
If you own a house and have a retirement account or other investments, an umbrella policy of $1 million or more should be part of your financial plan. Most insurance companies offer these plans in increments up to $5 million, and some go up to $10 million.
Insurance companies require specific levels of liability coverage on your auto and home insurance policies before they will approve an umbrella policy, typically:
- $300,000 per occurrence for personal liability, bodily injury, and property damage liability on your homeowners insurance policy
- $250,000 per person for bodily injury and $500,000 per accident on your car insurance policy
- $100,000 per accident for property damage on your car insurance policy
Michele Lerner is a contributing writer for The Motley Fool.