Recently, several clients asked me what an umbrella policy is and if they need one. If you have assets that you would like to protect from an unexpected lawsuit, you probably need an umbrella!
Imagine you are driving through an unfamiliar city at night. It’s dark and rainy and you’re not sure how to get back to your hotel. You stop at an intersection and look both ways, listening to the instructions on your GPS system. Traffic is clear, so turn around. Unexpectedly, a drunk pedestrian appears on the street while you are turning. You can’t stop in time and hit the person. Panic runs through your body as you imagine the worst.
The pedestrian may ask you to pay for medical bills and lost wages. If you are disabled and can no longer work as a result of your injuries and are the breadwinner, the pedestrian’s family could sue you because you can no longer provide an income for the family. Would your car insurance be enough to cover what the injured party could ask for? Would you have other assets at risk if your auto insurance couldn’t meet your claim? (Your house, bank accounts, retirement plans?)
If your auto liability limit is the state of Illinois minimum, you will pay a maximum of $25,000 to the injured party. This probably would not cover the cost of surgery if they needed it as a result of the accident injury. The injured party could seek a lawyer to sue him and his personal assets could be at risk. Or, your wages could be garnished to help pay the settlement.
Would you be comfortable if a court withheld money from your paycheck to settle a lawsuit? Or possibly force him to sell his house to reach a settlement with the injured party? Would you feel comfortable liquidating your bank accounts to reach a settlement with the injured party?
Worse still, if the person dies and leaves behind a family, they must consider that they are now without their main source of income. This places a huge financial burden on the family, for which a court could hold you responsible.
You can add a general liability policy to provide you with additional liability coverage for a minimal annual cost. Most umbrella policies start at $150 per year for $1 million of coverage. This type of insurance policy protects your assets from a lawsuit and protects you from the unnecessary stress of an unfortunate situation.
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