Umbrella Insurance Policies

Last week on the blog we talked about a worst case scenario where you cause an accident with a school bus. This would certainly lead to many lawsuits. We discussed which of your accounts are already protected from creditors in a lawsuit and which are not.

As a recap, when planning for Texas clients, I generally look at their net worth, and then reduce that by the value of their home equity, retirement accounts, 529s or prepaid tuition accounts, and any annuities or permanent life insurance cash value. The remaining amount is usually just the value of bank accounts and “taxable” investment accounts. This is the amount of their net worth that could be subject to creditors in a lawsuit. And this amount should be protected as well.

I really value simplicity and keeping expenses low. When you start discussing ways to protect assets, there are several complicated, expensive ways to do this. You could “hide” assets by moving them to offshore accounts. You could gift assets into a Family Limited Partnership in order to make them less attractive to creditors. You could buy annuities and big life insurance products to lock up the value.

Your first step should be to talk to your insurance agent about an excess liability insurance policy, more commonly known as an umbrella insurance policy. Your home and auto insurance policies already contain some liability coverage, but the umbrella policy places an additional amount of liability coverage on top of your other policies.

Your home insurance policy likely covers the value of your home if it is destroyed, the value of the contents inside your home, your housing expenses if you are not able to live in your home, and your liability if you were to be sued.

Your auto insurance policy likely covers the cost to repair a car that you crash into, the cost to repair your own car if you get in a wreck, damage you cause to property while in your car, the medical bills associated with an accident, and your liability if you were to be sued.

Umbrella insurance is an additional policy you can purchase that adds extra liability coverage for assets over what your home and auto policies cover.

Umbrella policies are sold in million dollar increments and are very inexpensive for the protection they offer. You could expect a $1 million umbrella policy to cost $200-$300 per year. Your current insurance agent can set up an umbrella insurance policy for up to $5 million in coverage. If you need more than $5 million of coverage, you likely will have to go to a specialty insurer.

Umbrella policies do have some rules for what your home and auto policies must contain in order to add an umbrella policy – often called the underlying limits. Your insurance agent can help with that review, or I’m happy to walk you through it if you like.

I have much more information I’d like to share on protecting your assets from creditors! I’m always looking for the most simple, inexpensive way to do this. If you have questions about your specific situation, let me know and I’d love to review it with you!

Note that this article should not be considered legal advice, or advice tailored to your specific situation.