Umbrella Insurance and the Hidden Costs: A Good Idea after 50?

Once you start exploring the many sides of financial security, one of the risk management options you may come across is ‘umbrella insurance’.

As a recent subscriber to the free financial planning tool, Savology, I had never heard of umbrella insurance. Having elements of my mother’s panic-gene in me, I casually asked my partner, the everlasting smarty-pants, what he knew about it and if we needed it. “Why? Our deck umbrella costs only $80,” he said. “We can replace it if needed.”

Ha ha.

Upon initiating my research, I read an article supplied through Savology that outlined scenarios that could chew through a retirement savings faster than a hornworm through my tomato crop. The panic gene flared again, so I initiated a fact-gathering quest. It started with speaking to my financial advisor who recommended Luke from the insurance company he works with – I’ll call it Insurance Company A (yes, a real-life company).

I also called, Jerry, my agent at Insurance Company B.

How much does umbrella insurance cost?

Jerry from Company B says: “I’m more than happy to sell you more insurance. Do you need it? If your assets add up to more than $1M, and you are concerned about liability, then sign up for it. However, be aware of the hidden costs of umbrella insurance. Make sure the liability on your home and vehicle coverages add up to 250K. Umbrella policies only take effect when claims exceed 250K. Typical policies are written at 50K liability. I [Jerry] typically write policies at 100, 300, 100, which is 4x the required coverage for the state of Missouri.”

He went on to explain that if we bumped my liability coverages up to 100, 300, 100, it would increase my monthly premium by $16/month. If we increased to 250K PLUS umbrella, it would increase my monthly premium by $75/month.

Jerry continued to add that in his 50 year career in insurance, he has never seen a claim exceed 250K.

Luke from Company A took a different approach. His explanation balanced a thin line of friendly information with doomsday predictions. When I mentioned I never heard of an umbrella policy before, he strongly advised, “If your agent hasn’t mentioned this before, fire him immediately and find an agent that will ensure you are fully covered!”

As I absorbed that news, Luke followed up with, “I haven’t met you, but you seem like a responsible person and you wouldn’t want anyone you injured to suffer needlessly, right?”

Luke wanted to schedule an immediate appointment to discuss my options, current policies, and to establish a coverage program that would ensure my assets before the worst could happen. He also insisted that I would need to transfer all my policies to Company A as they don’t insure standalone policies.

My blood pressure spiked during the call with Luke.

I briefly considered calling a third insurance company for another comparison, but felt I got the full range between fear and practicality. I also learned that fear often results in over coverage.

What to know about umbrella insurance

Always start with getting a better understanding of this insurance and your existing policies. If you fear liability and seek peace of mind from this level of coverage, then an umbrella policy is worth it. Umbrella policies exist to provide an additional level of liability protection with your other policies. Your existing home and auto coverage should cover the potential risks, however, if you own boats, motorcycles, RVs, other vehicles, and dangerous pets or animals, then you may wish to add an umbrella policy. The first requirement for an umbrella policy is that all properties – home, vehicles, recreational vehicles, rental properties –meet where umbrella policy picks up. Policy requirements vary by state so get the details from your agent.

Umbrellas for married vs non-married partners

If you are married and the state you live in is a joint tenancy state, the umbrella will cover both spouses. If not married, this does not extend to a partner or what is considered “non-married class collaborations”. Talk with your agent to determine if your state is joint tenancy.

Is a standalone policy possible?

A standalone policy can be generated for anyone. However, the company writing the policy will request a declarations page proving each underlying policy. As with my query with Company A, the agent insisted I would need to transfer all my policies to the company he represented.

How much insurance does one really need?

Insurance coverage is a topic that generates confusion, fear, yet a certain degree of peace of mind. Yet the question always remains, how much do I really need?

There are policies that are required and others that add a level of confidence. Your preference, lifestyle, assets, fear of liability, and budget all influence the choices available. Through additional research, I spoke with several experts – insurance agents, attorneys, financial planners – and peers. The experience and wisdom from everyone has demonstrated that no two stories are alike and the best advice is to speak to your own experts. Most critical is to not buy into the fear as that satisfies the agent’s desire to sell more insurance and not your goal for the best coverage to fit your needs.

Are you over insured?

When you are over insured, you’re protected against more situations than you really need, and you have more coverage than you could ever use. The downside of being over insured, of course, is that your monthly premiums may be too high. To find out if you are over insured, speak with your agent to review your home, auto, rental, or other policies you carry. Many times, increasing your liability coverage is enough without purchasing an additional policy.

A word about insurance gaps and overlaps

Overlap may be when you have too many similar coverages, especially for all the properties you own. Gap avoidance is why coverage up to the pick-up point for an umbrella coverage is required.

Proactive steps for insurance coverage

Insurance coverage is a risk management tactic to discuss regularly with your team of experts. As with other aspects of your financial health, a yearly review with your agent will help.

• Avoid panic-mongering agents.
• Ask your agent what best suits your needs.
• Review liability and deductible coverage on a yearly basis.
• If you purchase new properties, discuss gaps and overlaps.

Recommendations for the 50+ audience

As we move into our 50s and older, our assets will continue to grow and we have more to protect. In your yearly review, discuss with your agent what you wish to protect. Examine the asset values. Consider increasing the liability limits; often this is enough to cover the liability potential. Most people are adequately covered with their existing liability policies, however, if insurance overwhelms or intimidates you, it could be easy to overlook.

In conclusion: Get the details! Talk with your agent. The more informed you are, the more you avoid controversy and improve confidence.

p.s. earlier this month, the “derecho” storm blew past my house and snapped the outdoor umbrella stand. In a belated retort to my partner, I stated, “Maybe we should have signed up for umbrella insurance after all.”

All I got in return was a snort and a glare.

Kristen

photo by Ravi Kant from Pexels