Recently several clients have asked me what an umbrella policy is and if they need one. If you have assets that you’d like to protect from an unexpected lawsuit, you probably need an umbrella!
Imagine that you are driving in an unknown 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, while listening to directions on your GPS system. Traffic is clear, so turn around. Unexpectedly, a drunken pedestrian walks out onto the street as you’re turning. You can’t stop in time and hit the person. Panic takes over your body as you imagine the worst.
The pedestrian could ask you to pay for medical bills and lost wages. If they are disabled and can no longer work as a result of their injuries and are the breadwinner, the pedestrian’s family could sue them because they can no longer provide income for the family. Would your auto insurance be enough to cover what the injured party might 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 automobile liability limit is the state of Illinois minimum, you will pay a maximum of $25,000 to the injured party. This would probably not cover the cost of surgery if they needed it as a result of the accident injury. The injured party could seek an attorney to sue him and his personal property could be at risk. Or, his wages could be garnished to help pay for the settlement.
Would you be comfortable with a court taking money from your paycheck to settle a lawsuit? Or possibly force you to sell your home to settle with the injured party? Would you feel comfortable liquidating your bank accounts to settle with the injured party?
Worse yet, if the person dies and leaves a family behind, they must consider that they now do not have their main source of income. This presents a huge financial burden to the family, for which a court could hold you liable.
You can add a general liability policy to give you 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.
