Brad Rempe, CFP®, AIF®

While not very exciting, one important assessment we make on our clients’ financial situation is whether they are adequately insured.  The consequences of being underinsured can be catastrophic and, because of this, reviewing coverage on all your policies is one of the checklist items on our internal ‘standard of care’ document.  While we do not sell insurance or claim to be on the leading edge of changes in this arena (that’s where we rely on agents), we do have conversant knowledge to assess whether there is a gap that needs to be filled.

One of the more common gaps we see is the absence, or inadequacy, of umbrella liability protection.  So, what is umbrella insurance and why do you need it?

Umbrella insurance is liability protection that sits on top of the liability coverage in your homeowners and auto insurance policies.  Because of this, it’s important your umbrella policy deductible (where coverage starts) is coordinated with where the underlying policies limit out.  For example, if your auto insurance liability limit is $300,000 and your umbrella policy deductible is $500,000, you have a $200,000 coverage gap you would be responsible for filling out of your own pocket.  Having a gap in coverage would be like having an umbrella with a hole in it.  It might help a little but you’re still going to get wet.

The need for umbrella coverage should not be hard to understand.  Just imagine you are found at fault in an auto accident resulting in an extended hospital stay and large hospital bill.  This could easily push past underlying coverage in your auto policy, and not having the umbrella liability coverage could be catastrophic.

Umbrella insurance also has a broader range of coverage, including property damage, bodily injury and other issues such as libel or defamation of character.  If you’re found liable for damages (perhaps stemming from an auto accident or a neighbor child injuring himself on your backyard trampoline, etc.) the umbrella policy would pay not only monetary damages but also attorney fees and other court costs.  The other good news regarding umbrella insurance is that it’s pretty economical to obtain.

You should know that some of your assets are protected from creditors under federal bankruptcy law (such as your home and employee retirement accounts), but many other assets are not.  Understanding this is part of deciding how much umbrella insurance you need.  One common recommendation is to obtain umbrella insurance equal to your net worth.  We can help you decide how much coverage you need.  So, if you’re wondering whether your umbrella is big enough to keep you dry, give us a call.

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