Umbrella Insurance is an Important Asset Protection Tool in North Carolina

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning

Umbrella liability insurance provides protection above and beyond your home insurance and car insurance. It provides additional coverage for injuries or property damage that exceed the limits of your other policies.

For example, let’s say that you cause a serious car accident involving another car. Several people are injured in the accident, resulting in injuries valued $300,000, plus lost wages totaling $200,000 because the injured parties won’t be able to work for several months and the other person’s $60,000 car is totaled beyond repair. The end result—you’re looking at a total of $560,000 in total damages, but your car insurance limit is $300,000, meaning that you’ll need to pay the remaining $260,000 out of pocket. If you had an umbrella insurance policy, it would cover the $260,000 difference between your car insurance and the total damages.

What’s covered by umbrella insurance?

Generally, an umbrella insurance policy will cover:

  • Treatment of other party’s injuries and/or funeral expenses;
  • Damage to other party’s property;
  • Lawsuits for slander, libel, defamation, or similar personal attacks;
  • Costs of legal defense; and
  • Tenant’s injuries or property damage if you have rental property.

What’s not covered by umbrella insurance?

  • Your injuries;
  • Damage to your personal belongings;
  • Injuries or property damage that your business is responsible for;
  • Intentional or criminal acts; and
  • Injuries or property damage caused from use of certain recreational vehicles such as all-terrain vehicles (ATVs) or Jet Skis (coverage can vary by insurer).

Should I purchase umbrella insurance and if so, how much coverage should I purchase?

You may want to purchase umbrella insurance if:

  • You have significant savings, real estate, or other assets to protect;
  • You own items that can lead to injuries such as a pool, trampolines, tree house, or dogs (check whether there are any dog-breed restrictions);
  • You have teen drivers in your household;
  • You own rental property;
  • You coach children’s sports;
  • You travel outside the U.S. and are worried about potential liability claims while traveling;
  • You serve on the board of a non-profit; or
  • You participate in sports or hobbies that could injure others (e.g., surfing, skiing, hunting, boating, ATVs, snowmobiles, etc.)—just make sure your insurer covers your particular sport or hobby;

What should I know about purchasing umbrella insurance?

Most major insurers offer umbrella insurance, however, most companies require that you also purchase your homeowners and/or car insurance from them.  If you’re a business owner, a personal umbrella insurance policy will not cover your business, but you can look into a separate commercial umbrella insurance policy.

Most insurance companies will require you to have a minimum amount of base coverage on your home and car insurance, such as $300,000 on your homeowners and $250,000 on your car insurance.  The minimums vary by company.

Umbrella policies generally start at $1 million of coverage but can go higher. Many companies only offer coverage up to $5 million, but some companies will go higher.

While it can be difficult to predict the extent of possible future damages if there were a catastrophic event, but a rough rule of thumb is to purchase enough umbrella insurance to cover your estimated net worth.

The costs of coverage will vary depending upon the company and coverage, but the Insurance Information Institute estimates that an umbrella insurance policy with $1 million liability coverage will typically cost between $150-300 per year. The next $1 million of coverage might cost another $75 per year, and then about $50 per year for every additional million of coverage beyond $2 million.

Are You a Sitting Target?

Unfortunately, some individuals have a higher likelihood of being sued due to the nature of their professional or financial stature—in other words, those that have something to lose.

In our years of experience working with thousands of clients in the Wake County area, we find that asset protection planning is particularly important if any of the following apply:

  • You own a home and have an estimated net worth of $1M or more;
  • You own vacation property;
  • You own rental property;
  • You are high income-earning professionals;
  • You are high income-earning business owners;
  • You own a business with significant value.

Don’t leave yourself or your loved ones stuck dealing with the financial aftermath that a lawsuit, medical bills or long-term care costs, or unexpected tragedy can bring to your family. Contact Carolina Family Estate Planning today at (919) 443-3035 or fill out our online form to speak with someone about registering for a seminar or a Vision Meeting. You may also wish request a free copy Jackie Bedard’s book, Estate Planning Pitfalls: The Twelve Most Common Threats To Your Estate & Your Family’s Future.