Umbrella Policies Plug Holes In Your Coverage

What if you were sued for a weather-related mishap on your property? Or you were found at fault in a major traffic accident? An umbrella policy would have you covered.

Let’s start by dispensing with many of the myths surrounding umbrella liability coverage.

• It’s just for the rich.
• It’s too complicated to coordinate it with your existing insurance like your homeowners policy.
• The premiums are too expensive.

All of these myths are incorrect. Umbrella liability is relatively affordable, can be easily coordinated with your existing insurance policies and by no means is it just for the well-to-do.

Umbrella liability insurance is so named because it acts like an umbrella, sitting on top of your auto and homeowners liability policies to provide extra protection. (Even if you don’t own a home, remember that you still need renters insurance to cover both your liability and your personal property). Some examples of where umbrella coverage often comes into play:

• An auto accident in which you’re sued under your auto insurance policy.
• Your neighbor slips and falls on your property, and you’re sued under your homeowners insurance.
• A natural disaster in which another person's property is damaged by, say, a tree on your property crashing down on their vehicle or home. This usually falls into the, "I thought that was covered by my homeowners policy" category.

Your auto and homeowners policies have at least some liability insurance that would be used to settle legal claims. But what if a settlement (or judgment, if it goes to court) is $800,000 and you only have $300,000 of liability insurance? The insurer would pay its $300,000, but where are you going to get the other $500,000? Virtually everything you own would be fair game to pay off the debt. The only good news is that some states protect certain assets (like your home) from seizure.

Worried? You should be. With America’s love affair with lawsuits, you can’t afford to not have umbrella liability insurance.

Umbrella liability insurance pays $1 million, $2 million and sometimes even $5 million or more of a claim, on top of what your basic policies will pay. You’re usually able to set the amount. For the protection you get, umbrella liability coverage is not very expensive. Premiums are usually $200 to $300 a year for $1 million worth of coverage. The cost depends on such criteria as the amount of coverage, the insurance company issuing the policy and your own "personal risk factors" (such as the number of traffic tickets you’ve gotten in the past few years, and possibly your credit report).

When people do buy, they often don’t buy enough. For example, you may have assets worth $1 million, figure that you need enough coverage to protect your assets, and therefore buy a $1 million policy. But what if a judgment of $2 million is handed down? We often hear of juries awarding $20 million; it should be obvious that the amount of someone’s assets isn’t taken into consideration. In either of these cases, you would lose all of your assets and still owe money. Your future income, if you have to make settlement payments over time, could easily be jeopardized. The same goes for any inheritance you may receive (it could easily be seized for payment), not to mention any inheritance you may want to leave your children.

How much you own is irrelevant when deciding how much to purchase. Do you live in a wealthy town, where you could be an easy target for a big settlement? Do you travel a lot? Do you entertain a lot? Do you operate a home-based business and have employees or clients coming to your home on a regular basis? (Many self-employed people wrongly assume that this is covered in their homeowners policy.) If you answered yes to any of these questions, it is particularly important for you to have umbrella liability insurance.

Umbrella liability insurance usually carries a high deductible of $300,000 or more. It’s designed not to kick in until your other policies are tapped out. The illustration below shows how umbrella insurance is coordinated with your auto and homeowners policies. Typical umbrella policies require you to have homeowners and auto liability insurance equal to the amount of your deductible. It’s a good idea to try and get your umbrella liability, homeowners, and automobile policies from the same company; there’s usually a substantial premium discount. Additionally, you eliminate the potential nightmare of dealing with different insurance companies if something should happen, where each would likely try to shift payment responsibility to the others, leaving you caught in the middle.

Its depressing to think of all the liability risks you take, any of which can instantly decimate even the best financial planning strategy. Keep in mind that its fine to take calculated risks for example, if you don’t drive your car every day and you infrequently have people on your property, you may decide that instead of spending money on umbrella premiums you’d rather take the risk that you will never be hit with a liability lawsuit. This strategy is called "self insurance." (In fact, you’re automatically self-insured if you don’t have any insurance coverage.)

Umbrella coverage, if nothing else, offers psychological comfort. Youll know that if your neighbor falls on your front steps or you rear-end the car in front of you that you’re protected.

Covering Kids at College

Check Your Homeowners Insurance Before Sending Students To Campus

Every year thousands of students head off to college with their computers, stereos, televisions and calculators. But what if these items were stolen, damaged by fire or vandalized? Would your homeowners policy provide enough coverage to replace your student's personal possessions even if he or she is away at college?

Unfortunately many students are victims of these disasters every year. So before your child leaves home, it makes sense to check your homeowners insurance policy to ensure that everything they take with them to college is covered.

Typically, a homeowner's policy covers property away from home, up to a limit of 10 percent of the contents coverage. For example, if your home is insured for $100,000, the contents are covered for half that amount which amounts to $50,000. Therefore, the property away from home is covered for $5,000 -- minus the policy's deductible.

But even though you have coverage, you still must take into consideration whether your child lives in a dormitory or an off-campus apartment. If your child lives in a dormitory and is under 26 years old, then most of the students' personal belongings are covered. Keep in mind that high-ticket items such as jewelry require additional coverage in the form of a "personal articles floater." Computers may also need more coverage by purchasing a "rider" to protect it in campus dormitories.

However if your child is living in an off-campus apartment, your homeowners policy probably will not apply. Many insurance companies do not consider the student a part of the household any longer when he or she moves into an apartment. You may need to purchase a separate renters insurance policy which is fairly inexpensive and provides property and liability protection.

To determine if you have enough coverage for your children's personal possessions at college, you should consult your insurance agent or company representative.

The Insurance Information Network of California also offers the following tips for students on how to protect their property in their dormitory room or in their apartment:

• Always lock your door even if you go out for just a few minutes. Thieves will take any opportunity to get in your room and take something.
• Engrave all your possessions with an identification number such as your drivers license or social security number. Thieves are less prone to stealing marked items because they are difficult to sell. And if stolen, marked items will help police identify recovered property.
• Keep your cash or valuable items such as jewelry stored in a safe, which is usually provided by dormitories.
• Always close your curtains, lock your windows, and arrange your room so that the stereo and television are not on display. Don't give thieves a chance to see what you have.
• Be selective about giving out your room or telephone number or information to friends about where you keep your valuables or cash and when you won't be home. Usually criminals and victims know each other and the information is passed on inadvertently.
• Take extra precaution to safeguard your valuables during vacation as most thefts occur at this time.
• Keep an inventory of all your possessions in the event of a theft or fire. Store this list in a safe deposit box or fire proof box. An inventory will make it easier if you file a claim.