How Do You Avoid Falling to Your Financial Demise? Get a Bigger Safety Net

Whether you’re a few years or a few decades away from retirement, it’s a well-deserved chapter in life. After decades of hard work, everyone deserves to kick up their feet and enjoy the fruits of their labor.

Do you think about your retirement? What does it look like? If you’re like most people, it’s probably a mixture of friends, family, hobbies, traveling, and simply slowing down. But for some, their retirement dream will never come true.

Imagine this scenario.

On the way home from work one evening, you’re involved in a car crash. Luckily, your injuries are minor and the damage to your car can be repaired. However, the driver of the other car involved, and his passenger, sustained serious injuries and the car is considered a total loss by insurance.

You’re not surprised when you’re presented with a lawsuit. You head to court, where you are deemed responsible for the accident. You are required to pay for the medical bills of the injured parties, along with the wages they lost while recovering and the replacement cost of the vehicle.

When you add the numbers up, you quickly realize how serious of a situation you’re in. The total amount the other parties are owed equates to three times the coverage limit of your auto policy. How will you make up the difference? Is everything you’ve worked so hard for at risk, along with your dreams of retirement?

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Scenarios like this do happen, but they’re entirely avoidable.

We buy insurance policies to serve as metaphorical safety nets. While we hope we never have to use them, we have faith they’ll catch us if needed. It’s our responsibility to make sure our safety nets can handle everything that might come down on them.

How big is your net, and how much is balancing above it?

Today, I would like to share a solution for anyone worried about the limits of their liability coverage. An Umbrella/Excess policy is a type of insurance policy that can provide additional coverage after a primary policy limit is maxed out. Umbrella insurance can cover costs associated with bodily injury, property damage, legal damages, and legal fees.

It’s rare to come across a policy, either home or auto, that has more than $500,000 in liability coverage.  For most insurance carriers, $500,000 is the maximum liability coverage amount they can offer on a primary policy.  When an accident turns into a lawsuit, damages can quickly add up and surpass coverage limits. To continue with our metaphor, the weight of a settlement can be too much for a safety net, leaving the insured party without enough support.

Umbrella Insurance

Think of umbrella insurance as a net extension. Whenever a policy can’t absorb the weight of a claim, umbrella insurance provides additional support, keeping you (and your dreams) safe.

A close colleague of mine, Eugene Gozenput, is a personal injury attorney. He’s seen firsthand how lives can be changed forever by the absence of umbrella insurance.

To further explain, he told me of a recent case he represented. His client had been hit by a car while crossing the street. During the course of the trial, the defense made a settlement offer of $250,000 which Eugene and his client turned down.  The defense came back a second time and offered $500,000 which was also turned down. Proceeding with the trial, Eugene ended up securing a verdict of $7,075,000 for his client, an amount that surely surpasses the coverage limit of the responsible party. 

Verdicts like this one are warranted. Injured parties face mountains of medical debt, weeks or months of lost wages, and in severe cases, a lifetime of pain and suffering. Most insurance policies can barely make a dent in the monetary compensation an injured party needs and deserves to get their life back on track. Without umbrella insurance, your home and assets are exposed to a potential overage verdict.

Are You Covered?

Here’s what I tell my clients. If you don’t currently have umbrella insurance but own your home, car, have an investment portfolio, or own other assets, they’re all at risk. Depending on what your assets are worth when combined, securing umbrella insurance of at least $1 million is a great place to start.

An umbrella policy is an important supplement to your existing insurance program that shouldn’t be overlooked, especially if you have dreams of spending your golden years on a beach with an “umbrella” drink in hand. For just a few hundred dollars a year, you can protect your assets and future.

Do you carry higher liability limits via an umbrella policy? What dreams do you need to protect? Let’s keep the discussion going. My virtual door is always open.