When talking to military families, there are two types of insurance that I often find that they lack: renters' insurance, and umbrella liability insurance. I've written about renters insurance before, so today it is time to talk about umbrella liability insurance.
What Is Umbrella Insurance?Umbrella insurance is extra liability coverage that "sits on top of" your existing homeowners/renters and auto insurance liability coverage. Imagine that you have two blocks of coverage, your auto coverage and your homeowners/renters coverage. Each one covers you for a set amount of liability, let's say $300,000. If you were to suffer a liability judgement that exceeds the amount of the homeowners/renters or auto policy, then the umbrella insurance would kick in and pay up to the amount of coverage that you carry. Umbrella insurance is usually sold in increments of $1 million.
Umbrella insurance can also offers some coverage for some personal liability claims that don't have other coverage, such as libel, slander, defamation or invasion of privacy.
Why Do I Need Umbrella Insurance?Unfortunately, we live in a world that is full of liability. If you have a party, someone could slip on your front porch, or drive home after drinking. If you have a pet, it could run into the road and cause and accident, or it could bite someone. If you drive, you might cause and accident (or be involved in one and be found at fault even if you don't think you were wrong.) If you have babysitters, or a house cleaner, or you ever have repairmen in your house, you could be found liable for things that happen in conjunction with them, or injuries that occur while at your property. Do you have a trampoline, a gun, a boat, or a swing set? You need adequate liability coverage. Julie Rains of Investing to Thrive points out, umbrella insurance is "added protection in a lawsuit-driven world."
Liability judgements are very subjective, and there are aspects of the military lifestyle that make umbrella insurance extra important for military families. One, we tend to own homes that we rent out, and rental property brings with a host of liability issues. Two, even if our pay isn't high, the consistency of the military paycheck may make a jury feel that we can "afford" a liability judgement against us.
How Much Coverage Do I Need?A general rule is that you need to have as much coverage as your net worth, plus some. I lean towards the high side, since a judge can take future earnings into consideration.
It is important that you coordinate your umbrella policy coverage with your auto and homeowners/renters policies. If you have an umbrella policy that covers between $300,000 and $1,000,000 in liability, you need to have the liability limits on your homeowners/renters and auto policies set at $300,000, or you'll have a gap in coverage. It is easier if they are all with the same insurance company, and some companies require it.
How Much Does Umbrella Insurance Cost?The cost is surprising low and varies dramatically depending on the numbers of vehicles you own, the number of houses you own, the number of drivers in your family, and the underlying liability coverage that your umbrella policy is covering. Alex Hopkins of Military Planners say, "Umbrella policies are relatively inexpensive considering the amount of personal liability coverage they provide to all members of the household. " You can expect to pay a couple of hundred dollars a year for a $1 million dollar policy, with additional coverage getting progressively less expensive.
I certainly hope that none of us are ever in a position to need the coverage provided by umbrella insurance, but that's exactly the point of insurance: to insure against things we hope never happen. Take a look at your own personal situation, and maybe talk with your insurance company, and see whether your life might benefit from umbrella coverage.