The Cheapest Way to Protect What You’ve Got

Personal Umbrella Policy

A personal “umbrella” policy (PUP) provides liability protection over and above your home, renters, and auto insurance policies, usually at a much higher amount. Most auto policies max out at $250,000 or $500,000 per accident. But what if your teen is texting, hits a bicyclist, and that person dies? You could be liable for much more than the amount on the auto policy, putting your home and invested assets at risk.

The purpose of the PUP is to protect your assets in the event of an unforeseen tragic accident or situation. Coverage is usually very inexpensive – one of my clients just obtained a $10M policy for $1400 per year. A $2M policy is typically just a few hundred dollars per year. The relative low cost of a PUP makes it a smart choice for many, because well, stuff happens and we live in a litigious world. So, how do you know if you need it.

Here are some factors that might indicate you should have an umbrella policy:

  1. You have teen drivers. Enough said.
  2. You are a landlord or rent out your home on occasion via Airbnb. If someone were to get injured while staying on your property, you could be liable.
  3. You have a dog that is not covered on your homeowner’s policy. Many home insurance policies exempt breeds like pit bulls or German shepherds, leaving you at risk.
  4. You have a swimming pool or trampoline and have people over to visit your home.
  5. You are a public figure in some way (e.g., you are on your town’s city council) or you volunteer on a non-profit board of directors that does not carry director and officer coverage.
  6. You have large parties at your home and/or have a home office where clients visit.
  7. You employ people to work on your home (e.g., gardener, babysitter, handyman, dog walker, house cleaner).
  8. You have a second home that is often vacant, leaving you open to the possibility of someone being on your property and you not knowing it.

If you do need coverage, how much should you get? Most experts recommend you get an umbrella policy valued at 1-2 times your net worth. Ask your financial planner if you could benefit from an umbrella policy and get a recommendation that fits your specific situation.

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