As a small business owner, you have to take calculated risks every day. Without risk, there’s no reward, and every day you have to power up your location, laptop, or other operational resources, in order to serve your market to the best of your ability. In taking on this venture, many business owners are aware that there are essential insurance policies needed for coverage, but some small business owners unfortunately tend to overlook the importance of particular insurance policies due to their focus on growing their business on a shoestring budget.
For this article, I wanted to stress the importance of having a personal umbrella insurance policy. This is one policy in particular that’s easy to overlook due to the fact that it’s not as widely promoted in insurance circles. However, overlooking this essential policy could create disaster in terms of being held personally liable for major accidents.
Designed for additional protection
A personal umbrella policy is designed to protect you against personal liability lawsuit claims that extend beyond the liability protection of your auto, home, and renter’s insurance policies. So for example, in the case of an automobile accident that you are deemed at fault for, your car insurance provider will pay out up to the bodily and property damage liability limits on your policy. If you are sued for an amount in excess of said liability limit, then the claimant could take you to court for the remaining balance if you don’t have a Personal Umbrella Policy that could then be tapped into to cover the remaining amount. Many car insurance providers will require that you first get to a certain liability level on your auto policy before approving you for the Personal Umbrella Policy.
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For example, here in Sterling Heights, Michigan, my provider, AAA, requires an automobile insurance liability level of $250,000/$500,000 in terms of each person/each accident in bodily injury and $250,000 each accident in terms of property damage, before approving the personal umbrella policy. You would also need to increase the liability levels on your home or renter’s policy as well.
Peace of mind for a low price
The personal umbrella policy is relatively cheap, averaging around $200 per year for $1 million in coverage. You can usually increase the coverage to $2 million to $5 million, for about $10 – $15 more per month, per “additional million,” give or take. The reason the policies are so cheap is because, statistically, it’s a rare situation for an auto or home accident to exceed the liability protection on the basic policies. Your insurance company is usually very skilled at getting settlements (they usually don’t want this to go to court) and it’s most often in the claimant’s favor to just settle with the insurance company directly rather than taking it all the way to court. However, despite these stats, it’s still important to carry a personal umbrella policy.
Never stop at the minimum liability amounts
A liability claim from an auto accident is by far the most risky of the potential personal liability listings. As a result, it’s of my personal opinion that one should never ride around with just their state’s minimum liability amount. According to the January 2017 Auto Insurance Database Report, pages 35 to 47 shows that for an auto accident, the average bodily liability claim could range from $12,000 to upwards to $50,000 depending on the state. The issue with this is that some states have a minimum liability coverage amount that’s much lower than let’s say the $50,000 top of the line average. As a result, I would recommend that you always carry at least the following:
- Bodily injury: $250,000 for each person and $500,000 for the accident
- Property damage: $250,000 each accident
- Uninsured/underinsured motorists: $250,000 for each person and $500,000 for the accident
In addition, I would look at adding a personal umbrella policy of at least $1 million as a basic foundation. As you get into higher levels of income and net worth configurations, I would look at increasing the personal umbrella policy limits to the $2 million to $5 million level, which again, are relatively inexpensive premium increases.
What’s covered under an umbrella policy?
As mentioned, the personal umbrella policy will cover bodily and property liability damage above the liability limits on your auto, home, and renter’s insurance policies. But in addition, you are also covered for libel, slander, boating, and a variety of other personal liability situations that you might find yourself being sued for. Make sure to check your individual insurance policy to find a list of everything that your provider will cover with your Umbrella Policy.
What’s not covered under an umbrella policy?
You can’t get protected against intentional criminal acts, or investment losses, or damage you do to your own property, or costs that arise due to failure to perform a business contract of some sort. There’s also a variety of additional situations that aren’t covered under the umbrella policy, again please make sure to check your individual insurance policy to find a list of everything that your provider will cover. In general, all umbrella policies will operate by paying the excess liability amount above that of your auto and home policies, along with certain personal liability lawsuits that you might find yourself involved in.
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