I had just graduated from college and money was very tight. Yet, when it came time to select limits for my auto insurance policy I did what I thought was the right thing and bought the highest set of limits my agent quoted. They were $100,000 per person bodily injury / $300,000 per occurrence bodily injury and $100,000 per occurrence property damage.
I felt very secure with those limits of liability and probably should have because that was in 1970 and inflation would make those numbers six to seven times higher in today’s dollars.
However, I made my decision based on wanting to be excessively prudent. Yet, when I consider how much personal income I’ve generated in my lifetime I should have purchased more. My actual “exposure” was several million dollars.
That agent should have recommended that I buy an umbrella policy. What is an umbrella policy, you might ask? And do I need one?
An umbrella is a liability policy that comes into play once your primary insurance limits are “exhausted” or used. It can be a true umbrella that sets over your current limits and raises them to a set limit. Our it could be a following form excess policy that adds coverage to your primary layer.
In my case, years ago with 100/300/100 limits had I purchased a $1 million umbrella I would have been purchasing 900/700/900 excess of the 100/300/100. Had an individual sued me for bodily injury and received an award $1.1 million, my primary policy would have paid $100,000, my umbrella would have paid $900,000 and I would have been on the hook for the other $100,000.
Had I purchased a following form excess policy and faced the same award the primary would have paid $100,000, and the umbrella would have paid the next $1,000,000.
The average premium for a personal umbrella ranges from around $200 on up depending on the number of cars, homes, etc. you own.
Do I require an umbrella policy?
It is very hard to walk away from a court award. Most wage earners have a need, therefore to protect their lifetime income.
Also, umbrellas often will provide some coverage that in;t normally provided in the primary policy. In that regard it is a fail safe.
The average person should have at least a $1 million dollar umbrella. Most should have a $2 million. Many should have as much as $10 million limits.
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