The Real Reason You Need Umbrella Insurance

Umbrella Insurance

Umbrella Insurance: Get it before you get blown away by a lawsuit.

Did you know that simple things like owning a swimming pool, having teenage drivers and a family dog, owning residential rental estate, and even throwing parties in your home can make you susceptible to being sued?

Even the type of car you drive or how likely you are to be Googled can help determine the probability of you becoming entangled in a lawsuit.

I have to admit that being sued is one of my greatest fears in life, and I’m not alone.

Lawsuits are a way of life in America now. There are many examples of incredible jury awards for damages from civil lawsuits. There are examples of dog bite cases resulting in judgments for millions. Liable, slander, and defamation lawsuits stemming from the Internet have earned lawyers and plaintiffs tens of millions. And, horrible and negligent automobile accidents top the list for large lawsuit verdicts across the country.

So, what is a person to do? You could simply hide under a rock and hope bad things will not happen to you and your family. But that’s likely not a smart choice. You likely need umbrella insurance to protect your future, assets, and income.

Being underinsured is one of the biggest issues facing young people in their 20s, 30s, and 40s in America. Far too many people simply think they do not need to worry about being sued, or they simply want to hide away and hope that they will not face a lawsuit.

Umbrella Insurance Even With No Assets

A lot of people think umbrella insurance is only for the rich and famous who have a lot of assets that need to be protected from lawsuits. I can remember my father always saying, “You can’t squeeze blood from a turnip.” He’s got a point, to a degree. But what if that turnip was going to be worth a fortune in a few years? What if that turnip has a shady spot that looks exactly like the Virgin Mary and you could eventually sell it on eBay for millions of dollars?

That is a silly example. I know. But, what if you’re the turnip? Lets say, for example, you were negligent and caused a horrible car wreck. You just graduated from college with a mountain of student loan debt and only have a part-time job and a lousy apartment to show for your troubles. What could someone get from you by suing? You have no assets. You do not have a house or investment portfolio to tap to pay for a judgment. Or, do you?

Like most people, you are forgetting about your most important asset while you are young. It is relatively untouched and you don’t even realize it. It isn’t your home, car, or what little investments you may have accumulated when you are young. Your greatest asset is your ability to earn an income in the future.

According to the National Association of Colleges and Employers, the average college graduate with a Bachelor’s Degree earns a little over $44,000 per year. With pay raises, inflation, and promotions, a graduate with only a Bachelor’s Degree can expect to earn an estimated $2.25 million over the course of his or her lifetime.

If you lose a lawsuit and receive a judgement against you for damages, you could find your future wages garnished to help pay that award. With a motion filed by the person that you wronged, the court can issue an order for the garnishment of your wages. This order would require your employer to withhold a court-determined amount from your paycheck every month until your debt or lawsuit judgment has been paid. When your wages are garnished your employer will send the monthly payment directly to the person you owe money to instead of paying you that portion of your earnings.

That’s what you’re protecting with umbrella insurance.

Simple, Crazy Things That Leave You Vulnerable

You may be quite surprised at lawsuit triggers. Without even realizing it, we tend to open ourselves and our families up to needless risk for lawsuits. Does your family have a trampoline in your backyard and allow neighborhood children to play on it? Are you a teacher or a parent who chaperones your children’s field trips with the school? Do you let your children’s friends have sleepovers, playdates, and the like in your home?

What about the type of dog you own? According to the Insurance Information Institute, over 30% of all homeowner liability claims were the result of dog bites. The average claim paid out by homeowner’s insurance coverage was just $26,000, but there is always the possibility for severe cases and claims. Any judgment that tops $500,000 can easily exceed the standard homeowner’s liability coverage that is found in most homeowner’s insurance policies.

These are just a few of the many examples that just barely scratch the surface of your potential liability.

  • Do you have a cleaning service, lawn crew, or handyman work in your home or on your property?
  • You can also find yourself potentially liable for issues with your children’s swingset, treehouse, and other play sets.
  • Do you have a teenage driver?
  • What if he or she was bullying others on social media and the unthinkable happened?
  • Are you addicted to texting while driving?

You can quickly see how how your imagination, and the imagination of lawyers, can quickly run wild.

How Much Is Umbrella Insurance?

Umbrella insurance is relatively inexpensive to purchase. According to ACE Private Risk Services, a global insurance and reinsurance company, the cost of a $2 million umbrella insurance policy typically costs less than $500 in premium per year for the typical American family of four. Increasing your coverage to a $5 million umbrella insurance policy only adds about another $100 in premiums per year. Keep in mind you may need to increase your other liability insurance (home and auto) to qualify for umbrella insurance.

Have you ever wanted to sue someone who has slighted you in some way? You are not alone. The likelihood of being sued for both warranted and unnecessary events is increasing in America everyday. But you can protect yourself with umbrella insurance. Do not make the mistake of thinking it is too expensive or that you do not need it because you don’t have assets.

Editor’s note: I don’t have umbrella insurance, but I’ve always felt like I needed some for the reasons Hank cited. I’m going to check with my insurance company to see what they offer and try to share that information in an upcoming post.

Have you ever been sued? Are you very concerned about being sued and have umbrella insurance? Were you surprised by the simple list of things that can raise your likelihood of being sued?

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Last Edited: June 3, 2013 @ 10:13 am
About Hank Coleman

Hank Coleman is a fan of everything personal finance. He's the creator of the popular site Money Q&A, as well as other financial sites. Hank is currently studying to become a CFP. His freelance writing work can be seen across a variety of top-notch publications in finance and investing.

Comments

  1. HullFinancial says:

    Ours is about $420 per year for $2 million in coverage, DINKs, but we own a pit bull mix. We purchased ours through USAA’s affiliate. I’m sure someone like Ed Wise, http://www.wiseinsurancegroup.com, could probably do even better for us.

    • Hank Coleman says:

      HullFinancial It has been several years since I purchased my umbrella insurance, but that’s about what I pay as well. I’m a huge fan of USAA’s, and they offer a very competitive rate. That’s our insurance provider as well.