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Protecting Your Assets Under an Umbrella

Protecting Your Assets Under an Umbrella

Published: April 18, 2016

Getting caught in the rain without an umbrella can be an unpleasant experience. Getting caught without appropriate insurance coverage can be more than unpleasant — it could damage your hard-earned financial stability. Having an umbrella policy might make the difference between getting a little “wet” financially and facing a financial downpour.

Another Layer of Protection
Americans have become increasingly litigious, and some legal judgments may seem excessive. Injuries related to icy walkways, a swimming pool, a dog bite, or an auto accident could lead to a personal liability lawsuit. If you entertain often, employ workers in your home, or have teenagers who drive, you may have additional exposure.

Standard homeowners and auto insurance policies generally cover personal liability, but you may not have enough coverage to protect your income and assets in the event of a high-dollar judgment. That’s when umbrella insurance could be a big help, providing additional coverage up to policy limits.

Typically, you can obtain $1 million in coverage for a few hundred dollars or less annually; higher coverage amounts may be even more cost-effective.1 Before adding umbrella insurance, however, you generally must purchase the maximum liability coverage on your homeowners and automobile policies, which serve as a deductible for the umbrella policy.

On top of the liability coverage amount, an umbrella policy may pay legal expenses and compensation for time off from work to defend yourself in court. It might also cover situations not included in standard homeowners policies, such as libel, slander, invasion of privacy, and defamation of character.

Umbrella insurance is not just for wealthy households; it is also appropriate for middle-income families with substantial home equity, retirement savings, and current and future income that could be used to satisfy a large jury award. (Qualified retirement plan assets may have some protection from creditors under federal and/or state law, depending on the type of plan and jurisdiction, but you would still be liable for any judgments.) 

As Benjamin Franklin wrote, “An ounce of prevention is worth a pound of cure.”2 Protecting yourself with an umbrella policy could help avoid expensive consequences down the road.

1) Insurance Information Institute, 2015
2) ushistory.org

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2016 Emerald Connect, LLC.