You might wonder why you could possibly need more insurance if you already have auto, homeowners, and boat insurance policies in place. The answer is quite simple – lawsuits.

In today’s litigious society, these policies can reach their liability limit if you’re at-fault in a lawsuit. If the courts find you responsible for injuries or damages, issue a judgment, and your insurance policy reaches its limits, you’re responsible for the rest.

Insufficient Liability Limit

For residents in New Jersey, umbrella insurance is an inexpensive way to bump up your liability coverage, pay for defense costs, and protect your finances. It kicks in after the liability coverage of your underlying policy runs out.

For instance, let’s say that you have a New Jersey standard auto insurance policy with a $500,000 bodily injury liability limit. You also bought a $1 million umbrella policy. You’re found at-fault in an accident which seriously harmed the other driver.

The court awards the plaintiff a judgment of $850,000 for injuries and you must also pay their medical expenses, lost wages, and their rehabilitative therapy of $400,000. Your lawyer charges you $50,000 for your defense.

Your auto policy pays $500,000 (policy limit) and the umbrella policy pays $800,000. Since your underlying policy had an insufficient liability limit, you’d bear the financial burden without your umbrella policy.

Unprotected Assets & Earnings

Umbrella insurance provides the added layer of protection you need in case of a devastating lawsuit. How much liability coverage you need depends on your current and future income, your net worth, and your risk exposure.

If you have substantial assets such as home and investments and earn over $100,000, you’ll probably need a $2 million policy. If you own rental property too, you should consider a policy in the $3 million to $5 million range.

Don’t assume that you don’t need an umbrella insurance policy just because you’re starting out with few assets. The courts can seize future earnings which could negate any career advancements and damage your finances for years. The minimum umbrella insurance policy limit is $1 million and well worth the cost to protect your financial future.

People that participate in risky sports or hobbies that could injure others or people that own swimming pools or certain dog breeds are at higher risk of lawsuits and should consider at least a $1 million policy limit, too.

Uninsured & Underinsured Motorist Coverage

One of the most overlooked pieces of certain umbrella policies is the uninsured & underinsured motorist coverage.  In New Jersey, you have the option to purchase umbrella coverage for the accident that is caused by someone else and causes great harm to you or a family member.  This additional coverage protects you, from other people and provides you with the insurance in case they are not properly insured.

This is one of the most important benefits of an umbrella insurance policy and it should not be overlooked. Do not buy an umbrella insurance policy that does not provide this valuable protection for you and your family. 

Reduce Risk

No matter where you are on your financial journey, few people are willing to risk what they’ve worked hard to build, especially when they have nothing to gain. Rolling the dice with your life savings and assets just doesn’t make sense.

Since umbrella insurance policies provide “excess liability” coverage, they’re less expensive than standard insurance policies. Insurance companies sell policies in $1 million increments so your agent can tailor the policy to your needs. You may also qualify for a discount if you have good credit, have a claims-free insurance record, or you’re over a certain age.

Discuss your situation with your insurance agent or broker. They will recommend an adequate level of coverage to protect your assets and financial future.

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