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Afraid Someone Will Rain on Your Finances? Consider an Umbrella Policy

Dexter Evans

umbrella policyPersonal liability umbrella coverage is a type of insurance that protects you in the event of a claim or lawsuit filed against you which could cost you a substantial amount of money and put you in dire financial straits. It most often applies in situations involving a car accident where there are severe injuries which are more extensive than the at-fault party’s automobile policy limits. If the at-fault party has a personal liability umbrella policy, also known as “PLUP” coverage, that coverage will take over where the automobile policy leaves off. It can also apply in situations where you are sued for an incident involving your home such as a fall on your property or a dog bite. Some other situations where it may apply are lawsuits relating to:

  • Injuries caused by your children;
  • Watercrafts;
  • Aircrafts;
  • Rental properties;
  • Slander/libel/defamation

Some policies can also protect you when you are sued in a professional manner. In each situation, the coverage will only take over where the underlying policy leaves off. Umbrella policy can be purchased in varying amount of coverage, but the typical policy covers up to $1,000,000.00.

An umbrella policy can buy you peace of mind and help you sleep a little easier at night. Do you need one? The answer to that question depends upon what assets you have to protect. If you have very little in the way of assets, it may not make sense to carry such a large policy. But keep in mind that even if you don’t have significant personal assets, your wages can be garnished to pay a judgment. Furthermore, in Illinois, if you own a home, a judgment against you can be attached as a lien against your home making it impossible to sell the home until satisfaction of the judgment. Under limited circumstances, a forced sale of your primary residence can occur to satisfy a judgment, although such a mechanism is difficult due to the Illinois Homestead Exemption.

If you have other assets and personal wealth you want to protect and seek to avoid the worry of losing those assets (i.e. summer homes, 401(k), savings accounts, etc.), a PLUP policy is a no-brainer. The coverage is relatively inexpensive, sometimes even as little as $100-200 per year if part of a bundle of insurance coverage.

While umbrella policies can prevent the terrible situation where a lawsuit essentially wipes out the personal wealth one has accumulated over the years, there are some limitations. For example, umbrella policies typically do not act to compensate the policyholder for his or her own damages. In other words, you cannot generally use the umbrella policy in a situation where you were the one injured or suffered damages. Additionally, like most insurance policies, PLUP policies usually will not cover intentional or reckless acts. PLUP policies also generally do not cover lawsuits relating to your business.

You should check with your insurance agent to find out exactly what an umbrella policy does and does not cover. However, do speak with them and find out the benefits and cost of umbrella coverage. It may provide some protection on days in your life when the weather is dark and gray.

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