Cheap Insurance that is Really Worth It - Umbrella Policies (DailyFinance.com)

Umbrella Insurance Policies: Why You Might Want That Extra Protection

by Michele Lerner Jul 5th 2013 5:00AM

Dan Ramsey, an independent insurance agent with Brandt, Ramsey and Associates in Alexandria, Va., says the most memorable claim on an umbrella insurance policy he was involved in was made by a small business owner who had purchased a $2 million policy.

"After attending a Christmas party, my client got involved in a fatal auto accident where the other driver was killed," says Ramsey. "My client was given a breathalyzer on the scene and exceeded the legal alcohol limit. He was sued for something like $1.25 million by the claimant's family and was legally liable for the damages, which were paid by the umbrella policy. The client was otherwise an upstanding citizen with no past history of these kinds of events."

Protection Beyond the Usual

While its easy to assume that only a rich person could need that much insurance coverage, you'd be surprised at how important an umbrella policy can be for an average member of the middle class. For example, if you have a car insurance policy with liability coverage, you may think you have enough protection in case of an accident. But a lawsuit like the one described above could quickly exceed the $100,000 or $300,000 insurance payout.

An umbrella policy provides an additional layer of insurance, typically $1 million or $2 million, above your auto insurance and your home insurance liability coverage. Consider the following scenarios where an umbrella policy would have been helpful:

• 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.

Although 85 percent of umbrella insurance claims are related to car accidents, the policies offer protection against accidents that occur at your home, too -- for example, in case someone falls down your stairs and sues you, or your balcony collapses during a party. Many people opt for an umbrella policy because they have a pool or a trampoline on their property and fear the consequences of a child getting injured.

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.

Another important feature of these policies is protection in a lawsuit against you for slander or defamation of character, or for decisions you might have made as a volunteer member of a nonprofit board. If you regularly blog about controversial topics or rant on Facebook, an umbrella policy just might be a good idea to protect your assets from a litigious individual who believes you've damaged their reputation.

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

The average cost for a $1 million policy is $200 annually -- which you might find a relatively low price for the peace of mind and security it offers.

Michele Lerner is a contributing writer for The Motley Fool.

Beware the Wealth Killers (from Ken and Daria Dolan)

Dolans.com
Beware These 9 Wealth Killers
by Ken Dolan October 22, 2008 10:13 AM
Posted in: Family & Money

These are scary times, indeed. Even the talking heads on TV tell us that we're in uncharted territory. And based on our 20+ years of experience in the financial business, this is one of the few times that we actually agree with them!

Between economic (and natural) catastrophes...banking disasters...more and more scams…and bad news upon more bad news, it's no wonder that people are tempted to stuff their cash under their mattress!

Yes, it's been a tough year to grow your money. But to make matters even worse, there are also serious threats that can eat away at your hard-earned dollars.

As they say, "Forewarned is forearmed." If you know what threats are out there, you can take steps now to protect your money.

To that end, we've pulled together these top 9 threats to guard against AND what you must do about them. Read on...

Money Threat #1: Inflation.
Dare we say the dreaded "I" word? (May as well since we're in the thick of inflation now!)

Inflation affects more than just the cost of the products you buy – it can also affect the price of your loans since inflation generally pushes interest rates up…not to mention that it can negatively influence your investments because many companies grow more slowly during inflationary times.

Sit tight. Prices will eventually drop again – they always do. In the meantime, cut corners where you can. Save more. You should also start a "rainy day" fund, if you don't have one already. You can quickly calculate how much you need to set aside for emergencies here. (/calculators/How_Much_Do_I_Need_For_Emergencies.html)



Money Threat #2: Stock market losses.
In the midst of the banking crisis and the tumbling real estate and mortgage markets, woe is Wall Street. This turmoil in the stock market affects your retirement, your savings and your financial health as a whole.

Whatever you do, don't spend one more day invested in stocks if you're uncomfortable doing so. Rule #1 in our 10 Simple Rules of Investing (/invest_wisely/dolans_10_rules_of_investing.html) is to "Know thy sleep quotient." In a nutshell, that means reduce your risk if you're staying awake at night worrying about your investments.

Remember: There are always safer places to put your money. Just don't lose your shirt in THESE investments.

Money Threat #3: Bank problems
Many of us who never worried about the safety of our assets in a bank are now very concerned…with good reason. This whole financial crisis is FAR from over.

You can never be too cautious, so first check the safety of your bank through Veribanc (http://www.veribanc.com/ConsumerReports.php) (800/44-BANKS). They provide ratings on all U.S. federally-insured financial institutions. Another source is Weiss Ratings (http://www.weissratings.com/) , which includes a free list of the strongest- and weakest-rated banks in the nation. (You should also be aware of our 5 Warning Signs Your Bank Could Be In Trouble. (/banking/bank-failure-warning-signs.html) )

Also, make sure that your bank is FDIC insured. But don't be hasty – you need to know specifically what's covered and what's not. Find out in How to Protect Your Bank Deposits (/banking/fdic-insurance.html)

Money Threat #4: Weak dollar.
You may think that our weak dollar only affects us if we travel overseas. Not true.

It actually poses a lot of problems for our personal wealth as well. Since we don't manufacture much in the U.S. anymore, a lot of the products we purchase – from cars and wines to toys and clothes – are imported from foreign markets. A weak dollar makes them more expensive.

Also, since we're so dependent on foreign oil, a weak dollar keeps fuel costs high AND, as interest rates remain low, we don't earn as much on investments like CDs and bonds.

One solution, if you can stand the volatility and risk, is to consider a small investment in gold. (Click here for 4 ways to profit from a weak dollar. (/invest_wisely/investing_with_a_weak_dollar.html) )

Money Threat #5: The Presidential election.
We're not about to tell you who to vote for, but you need to know how Wall Street reacts when it comes to electing our highest public official.

Typically, if a Democrat is winning in the weeks leading up to an election, the stock market goes crazy and sells off in advance. It then usually rallies sometime after the new president takes his oath.

On the other hand, if a Republican is winning, the market usually rallies beforehand, then typically sells off not long after he takes office.

No matter what happens, if you plan to stay in the market (and we think it's treacherous to be there at the moment), be prepared for some short-term losses at the very least.

[Money Threat #6: Fluctuating energy prices.
Sure, gas prices are dropping...but for how long? (As long as we're importing oil, the risk of skyrocketing prices will always be there!)

Higher energy prices affect more than just the prices at the pump. They often lead to higher prices not only for essential goods such as food, but for just about anything that needs to be transported by truck or air.

They have a profound impact on your everyday products, not to mention the economy at large. And historically speaking, recessions often follow oil price surges.

What to do? The key is conservation. Slow down the demand. Carpool to work or take public transportation (or work from home a few days a week if your company allows it). You can find four other ways to save gas here (/save_more/gallery/high-gas-prices.html) .

Money Threat #7: Excessive household debt.
In The Millionaire Next Door, authors Thomas Stanley and William Danko noted that most self-made millionaires save or invest 15 to 20 percent of their income. The other side of the coin is that average Americans spend 18% of their disposable income paying off their debts. What a nightmare!

The obvious lesson learned is you'll never become a millionaire when you have a desk full of loans and credit card bills to pay each month. Find out how to become completely debt-free in 10 simple steps. (/debt_management/gallery/living-debt-free.html)

Money Threat #8: Being under-insured.
It's estimated that two out of three homes nationwide are under-insured. That's a scary statistic – especially in light of all of the natural disasters over the last few months.

Here's another frightening fact: Many homeowners with older insurance policies don't know that since the late 1990s they've had to specifically request a "guaranteed replacement" policy. Meaning if they don't, their policy may set pay-out limits that may not be enough to cover the cost to repair or rebuild their home. In the unlikely event of a disaster, the potential financial loss is staggering.

Eliminate your risk. Check your homeowner's policy. Then get our checklist to be sure you're prepared, just in case: What to Do When Disaster Strikes (/family_money/gallery/what-to-do-when-disaster-strikes.html) .

Money Threat #9: Money scams
If you receive an offer in the mail (or from a telemarketer) that sounds too good to be true, either look at it more closely…or, even better, pitch it.

One piece of mail you're much better off ignoring is a letter promising "mortgage rescue assistance." It has 'scam' written all over it. Remember, you do not and should not pay money to ANYONE to stay out of foreclosure. If you need help, consult a real estate attorney or call HOPE NOW at 1-800-995-HOPE

And…if you have a child applying to colleges this year, beware the scholarship scams, which "guarantee" a scholarship for a $50 to $1,500 fee. Ha!

Don't forget to forward this information to a friend who may need it!



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