If you have an umbrella policy, you should learn how to maximize an umbrella policy. After all, an umbrella policy costs you premiums every year you own one.
If you have assets that amount to more than what your car insurance and home insurance coverage provides, then you should probably get an umbrella policy for protection. The amount of umbrella policy coverage you should have is an individual choice. If you want to be safe, get an umbrella policy equal to your estimated net worth.
I've personally taken a “riskier” approach by getting an umbrella policy less than my net worth. I figure, I'm not doing anything particularly offensive or risky in day-to-day life. Nor is my business putting anybody in physical danger. If I was running a roller coaster amusement park on the other hand, you bet your buns of steel I'm getting maximum coverage!
The point of this article is remind people to protect their assets. I also want you to have a talk with your insurance company since you're paying for coverage. Finally, make sure the insurance coverage is aligned to expectations. Spending a lifetime of work only to see it get wiped away by some random act would be unfortunate.
How To Maximize An Umbrella Policy
Having lived in America for over 25 years now, it's clear America is the greatest country on Earth. But even the greats, have problems. For example, with over 150 million orphans in the world, there are still families who decide to have 10 kids! How about adopting at least one for every five to help alleviate some suffering if you care about kids so much?
The United Nations Food and Agriculture Organization estimates that about 805 million people of the 7.3 billion people in the world are suffering from chronic undernourishment. Despite this staggering number, it's as if Americans don't give a crap. If we did, there wouldn't be 79 million obese Americans (35% of the population) according to the CDC and the Journal of American Medicine. We'd be much more mindful of what we eat.
It's fruitless to try and change the world. You'll just get frustrated or make other people angry. As a personal finance blogger, all I can do is publish things I believe in based on experience that may help others. If you don't like the advice, you can click away in a jiffy.
Every year I call my insurance company to go over my coverage. I ask them to clarify my umbrella policy with various scenarios. The great irony of owning an insurance policy is that you're winning and losing at the same time if you never use your policy. The longer you pay your premiums without an incident, the more your insurance company makes. Here are a couple questions I asked that raises an interesting scenario.
Q&A With Umbrella Policy Insurance Company
Question: Let's say someone in my household gets sued for the maximum amount my umbrella policy covers e.g. $3 million. Does that mean if I get sued the very next day, I no longer have umbrella policy coverage since its already been used up by another household member?
Answer: No. Your umbrella policy covers each person in the household per incident for up to $3 million. In other words, if you get sued the next day, you will also be protected for up to $3 million.
Intrigued, I follow up with another question to clarify.
Question: Let's say I have 20 people living in my household. Are you saying that I theoretically have $60 million in umbrella policy coverage if each person gets sued in separate incidents?
Answer: Wait a minute, you have 20 people in your household?! (I explained I was just asking in such a scenario as an example). Yes, theoretically each member of your household would get umbrella coverage.
My umbrella policy insurance woman NEVER explicitly said the words “$60 million in coverage” as she was in shock that I was asking such a thing. She couldn't understand that I was just providing an extreme scenario to clarify a point. She also didn't want to be caught on a recorded line saying I am eligible for a $60 million umbrella coverage either. Instead, she kept on asking me if I had 20 people in my household.
The Umbrella Policy Is Good Value
If you are an American taxpayer who is worried about the cost of children, don't be! All those articles about how it costs $250,000 – $1 million to raise a child from birth until adulthood are bogus. If they weren't, why do you see large families survive just fine on median household incomes?
Because the government wants each American to own a home, they've provided the mortgage interest deduction and tax-free real estate profits as a way to lure renters in. The government also wants you to have lots of children because the population growth rate is slowing. If the government didn't, then why would they institute a marriage penalty tax that encourages one high income earning spouse to stay at home? The tax is ludicrous as you'll see after reading the multiple income scenarios I inputted.
If you're a single individual paying lots of taxes, you're kind of getting screwed. By having a large family, you become the beneficiary of child tax credits. You get government subsidies. Further, you get benefits paid for by other tax payers. For example, there are homeowners who pay property taxes who don't even have kids, yet their property taxes go towards funding public schools. That's good for society, but what about just taxing/charging people who utilize the facilities instead?
Insurance Companies Approve Larger Families
Even insurance companies are supportive of large families by charging the same price for an umbrella policy coverage whether you have one person in your household or 20. Why not give a premium discount for smaller families or charge per head instead? That would be too logical.
I just want to have a discussion with the community about the importance of insurance coverage. Please ask your insurance companies various scenario questions. It's good to know what happens in various circumstances. The last thing you want to happen is for your insurance company to say, “SO SORRY! You are not covered,” when you need them most.
Related: How Does An Umbrella Policy Work?
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