You have carefully chosen the coverage level of your home and auto policy, so should you protect yourself from all possible risk corrections? Unfortunately. In the event of an expensive lawsuit, your existing car and homeowner insurance may not be enough to protect your eggs.
Are you at risk? Recent statistics show that $500,000 is the national average payout in the car liability case, while $900,000 is the average of the property liability case*. In addition, 25% of all $1,000,000 or higher bonuses are in California [yes, we are a happy state of litigation]. Even if you are absolutely considered to be not at fault, you may incur a large lawyer's bill for your defense.
This is an example – let you say that you or someone in your family is involved in a car accident. You are determined to make a mistake, and the person you injured is suing you. We assume that you have taken $100,000 in personal injury protection on your car policy, but the court ordered you to pay $500,000 to the victim. Your car policy will pay the first $100,000, but where does the extra $400,000 come from? Your home, any other real estate, your vehicle, other personal property, your savings, investments and other current assets may need to be liquid to meet the court's decision.
If you don't have an asset and your net worth is not enough to pay your judgment, do you still need insurance? Yes, because your future 25% of your income may also be at risk and can be handled in accordance with court orders.
Have a young driver at home? Not only are they more prone to accidents, but they can also be remedied if they are considered to be at fault in the accident. Not to mention that your assets are at risk.
The umbrella policy provides additional protection for your car, homeowner, apartment or renter policy so you can be protected at home and in the vehicle. You work hard, so why don't you want to protect that nest?
The umbrella liability policy typically covers between $1,000,000 and $5,000,000 and is quite cheap [the average policy per million dollars is $1,000,000]. Reassessing your existing policies, getting all the discounts you are entitled to, or slowly increasing your deductibles can often make up for the increased costs, which is well worth it.
In short, no umbrella policy is like jumping out of the plane without a parachute. Why take the risk of life to build everything? Once you have a umbrella policy, you will wonder if you have lived without a protective umbrella.
*Source: Current Awards for Personal Injury Trends – 48th Edition. Copyright 2009 by LRP Press, West Palm Beach, Florida. Http://www.lrp.com