2855: Umbrella Insurance Policy by Jeff Rose of Good Financial Cents on Personal Financial Planning

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[00:00:25] This is Optimal Finance Daily, Umbrella Insurance Policy by Jeff Rose of GoodFinancialCents.com

[00:00:34] and I'm your host and personal finance enthusiast, Diania Merriam.

[00:00:39] Now let's get to today's post as we optimize your life.

[00:00:47] Umbrella Insurance Policy by Jeff Rose of GoodFinancialCents.com

[00:00:54] Umbrella Insurance, often seen as a reserve for the wealthy, can be a financial lifesaver in dire situations,

[00:01:02] covering gaps left by standard insurance policies.

[00:01:06] Through the lens of a budding financial planner, this article sheds light on the underrated umbrella policy,

[00:01:14] unraveling its affordably priced extensive coverage that extends a financial safety net

[00:01:20] when the unexpected storms of life hit.

[00:01:23] When I first got started in the financial planning industry,

[00:01:27] I had the opportunity to sit in on a joint meeting between my clients and a wealth management specialist

[00:01:33] who came down from my home office.

[00:01:36] The nature of the meeting was to discuss some estate planning strategies

[00:01:40] that my clients were interested in to protect their assets.

[00:01:44] Ironically, the one item in the meeting that really stuck out to me

[00:01:47] was an anything related to estate planning, at least directly.

[00:01:52] The specialist, who was also very versed in insurance, had made a strong case

[00:01:57] that my clients needed an umbrella policy.

[00:02:00] At the time I was young and realized I didn't even know what an umbrella policy was.

[00:02:06] The wealth specialist had shared instance after instance

[00:02:09] of why umbrella policies make sense for almost everyone,

[00:02:14] especially with how inexpensive they are.

[00:02:17] Personal umbrella insurance policies are often misinterpreted by consumers

[00:02:22] and are surrounded by myths so often that people can fail to recognize

[00:02:27] the importance of having additional coverage when they need it most.

[00:02:32] I'm amazed at how many people I come across

[00:02:34] who don't really understand the basics and benefits of umbrella policies.

[00:02:38] I guess I can't be too amazed since I didn't know about them.

[00:02:42] In my defense, I was only 24.

[00:02:45] Umbrella insurance policies are thought to be too expensive

[00:02:48] to afford for average income consumers and are too complicated

[00:02:52] to fit in with the insurance coverage you already have.

[00:02:56] But for many, the added protection of an umbrella policy

[00:03:00] may be just what your family needs.

[00:03:03] What is an umbrella policy?

[00:03:06] Umbrella insurance policies essentially rest on your existing insurance policies

[00:03:11] for your vehicles and home.

[00:03:13] They provide extra protection in the event of a situation

[00:03:16] not fully covered by your normal insurance.

[00:03:20] Umbrella policies cover the gaps left by your existing insurance coverage.

[00:03:25] How does an umbrella insurance policy protect you?

[00:03:29] For instance, say you're sued for liability in an auto accident

[00:03:33] and the judgment is declared against you for $500,000

[00:03:37] but you only have $200,000 worth of liability coverage.

[00:03:42] The rest of the money would have to come out of your own pocket

[00:03:45] unless you had the umbrella coverage to fall back on.

[00:03:49] Without the additional umbrella insurance protection,

[00:03:52] you're susceptible to losing all of your assets

[00:03:55] to pay off the outstanding debts including your home.

[00:03:59] Umbrella policies generally pay an additional $1-2 million

[00:04:03] on top of your current insurance policy.

[00:04:06] In some cases, a $5 million policy is available.

[00:04:10] How much is an umbrella policy?

[00:04:13] The cost of umbrella insurance is not as expensive as some think.

[00:04:18] Premiums can range between $150 and $300 a year

[00:04:22] for a million dollars worth of coverage over existing insurance policies.

[00:04:27] When we bought our first $1-million umbrella policies six years ago,

[00:04:32] our premium was only about $200 and I want to say it was less.

[00:04:37] Actual premium costs are dependent on a number of factors

[00:04:40] including the current insurance company you're using

[00:04:43] and the personal risk factors involved in your situation.

[00:04:48] The amount you pay will also be dictated by your credit score.

[00:04:52] Umbrella policies typically carry very high deductible amounts,

[00:04:56] usually several hundred thousand dollars

[00:04:59] because they're designed to be used only when all other insurance policies have been drained.

[00:05:04] An umbrella policy will require you to have both homeowners

[00:05:08] and auto insurance coverage in amounts equal to the amount of your deductible.

[00:05:14] Discounts can be obtained on the umbrella policies

[00:05:17] if you have the same insurance carrier for all of your coverage policies.

[00:05:22] Recently, we increased our umbrella policy coverage with our insurance agent.

[00:05:26] Since we already had the rest of our coverage with them,

[00:05:30] we were able to get a decent discount for it.

[00:05:33] Do you need umbrella insurance coverage?

[00:05:36] There's no right answer to this question

[00:05:38] as every individual situation dictates a different need for insurance.

[00:05:43] It's worth noting that in today's society, lawsuits are commonplace

[00:05:47] and in the event an incident does occur,

[00:05:51] it's necessary to have the right protection to cover yourself

[00:05:54] and your family and protect your assets and interests with the right insurance.

[00:05:59] That has been the motivating force behind why we took out a larger umbrella policy

[00:06:04] and while I encourage my clients to at least consider purchasing one.

[00:06:09] Consumers will need to determine their own risks for added protection

[00:06:13] such as the amount of time they spend driving their vehicles,

[00:06:17] the risk of people getting injured on their property

[00:06:19] and the general nature of their financial and personal situation.

[00:06:24] You also need to check in with the terms of your existing insurance coverage.

[00:06:29] If there are any gaps where coverage for specific incidents is not covered,

[00:06:34] such as being self-employed and having clientele regularly in your home,

[00:06:39] you may want to consider the options for umbrella insurance coverage.

[00:06:43] After an incident, it can be too late to protect yourself

[00:06:47] so check into the benefits of additional umbrella insurance coverage

[00:06:51] for the peace of mind it can offer.

[00:06:53] The bottom line, you never know when it might rain.

[00:06:57] Better have your umbrella policy handy.

[00:07:01] In navigating the unpredictable avenues of life,

[00:07:04] especially in a litigious society,

[00:07:07] having a cushion against unforeseen liabilities is wise.

[00:07:11] An umbrella insurance policy emerges as a sensible precaution,

[00:07:15] extending a financial safety net beyond what regular insurance covers.

[00:07:21] Often misconstrued as expensive and complex,

[00:07:25] umbrella policies are relatively affordable

[00:07:27] and can be seamlessly integrated with existing insurance provisions.

[00:07:32] They bridge the coverage gaps,

[00:07:35] safeguarding one's assets against potential lawsuits and unexpected claims.

[00:07:40] The modest annual premium for a substantial coverage amount

[00:07:44] is a small price for peace of mind and financial security.

[00:07:48] Every individual's situation is unique,

[00:07:52] hence a thorough assessment of personal risks

[00:07:55] and current insurance coverage

[00:07:57] is imperative to asserting the necessity of an umbrella policy.

[00:08:06] You just listened to the post titled

[00:08:07] Umbrella Insurance Policy by Jeff Rose of GoodFinancialSense.com

[00:08:13] and I'll be right back with my commentary.

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[00:09:18] According to various sources and industry estimates,

[00:09:22] only about 10-15% of American households carry an umbrella insurance policy.

[00:09:27] This low adoption rate is often attributed to a lack of awareness

[00:09:32] about the benefits of umbrella insurance, misconceptions about its costs

[00:09:36] and the belief that existing home or auto insurance policies

[00:09:40] provide sufficient coverage.

[00:09:43] On the other hand, according to industry data,

[00:09:46] only 1-2% of auto accidents result in claims

[00:09:50] that exceed the typical liability limits of auto insurance policies.

[00:09:54] So while the likelihood of needing umbrella insurance may be low,

[00:10:00] the catastrophic result of not having it if you do need it

[00:10:04] paired with its relatively low cost still makes it an appealing option

[00:10:09] especially if you have significant assets or potential future earnings to protect.

[00:10:15] Also, in our litigious society, it's helpful to know

[00:10:19] that umbrella insurance isn't limited to incidents related to your home or vehicle.

[00:10:24] It extends to various personal liability situations.

[00:10:29] For example, if someone sues you for defamation

[00:10:32] alleging that your statements on social media cause them harm,

[00:10:37] your umbrella policy can cover legal fees, court costs,

[00:10:41] and any settlement or judgment against you.

[00:10:44] Umbrella insurance serves as a comprehensive safety net

[00:10:47] ensuring you're covered for a wide array of potential liabilities

[00:10:52] that could otherwise lead to significant financial hardship.

[00:10:56] And that will do it for another edition of Optimal Finance Daily.

[00:11:00] Have a great day, thank you for listening, and I'll be back tomorrow with another post.

[00:11:06] So I'll see you there where Optimal Life awaits.