Rainy Days Happen to All of Us: The Importance of Being Prepared by Carrying Umbrella Insurance



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The Importance of Being Prepared by Carrying Umbrella Insurance


Benefits of Insurance. 

One of the great benefits of insurance is that you can transfer the risk of loss and the cost of litigation to an insurance company, rather than bearing the risks yourself.  Many insurance products are self-evident.  For example, medical insurance, homeowners and auto insurance and life insurance.  It’s pretty obvious that you need these types of insurance, and of course, there are many folks who stand ready to provide access to these policies.

What is Umbrella Coverage?

One type of policy may not be so obvious.  That is, excess liability or “umbrella” insurance.  This sort of policy provides coverage for amounts in excess of the coverage in your homeowners or automobile policies.  If you have a slip and fall accident at your home or an automobile accident, your coverage with a standard policy may be limited to $300,000 or $500,000.  But if someone is seriously injured, the medical bills alone can easily exceed these limits.  If defense costs and an award for damages exceeds this limit, you will be on the hook for the excess.  Obviously, this could have a serious impact on your financial well-being.

The good news is that you can arrange additional coverage by purchasing umbrella insurance.  Your policy limits can be greatly increased and for a relatively small additional premium.   It’s a litigious world out there and this may be a small price to pay for peace of mind.

How Much Insurance Should I Buy? 

The amount of insurance you purchase should be based on your individual circumstances and risks.  While we normally suggest umbrella coverage equal to your net worth, your situation may dictate an even higher amount of coverage.   The premiums are relatively small, with $1 Million of coverage normally costing $250-500.  If you needed $5 Million in coverage, it may cost about $1,200.  We suggest that you consult with your insurance advisor to determine the appropriate coverage for your particular situation.

Special thanks to John Weatherly and Mark Burleson at Bowen, Miclette & Britt for providing resources for this article.  If you would like to learn more, here’s a link to a Kiplinger article, “Why You Need an Umbrella Insurance Policy.”

Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

Larry Maddox, CFP®, CPA
Larry founded Horizon Advisors, LLC in Houston, Texas in 1999 with fellow business partner Joe Thomson. He collaborates with our wealth management team and other external advisors to provide comprehensive wealth management services.

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