This is a question I get all the time.
The common misperception by many is they don’t think they need an umbrella because they don’t think they are wealthy enough to need one.
That’s because they don’t understand what assets are really at risk. Most people look at their savings accounts and their checking accounts, and based on those two figures alone, they don’t believe an umbrella is necessary.
But that’s not all that’s at risk.
Obviously, I’m not an attorney.
If you’re really curious, I’d recommend talking to one to get a clearer picture.
Basic Protections & Risks in Texas
Let’s talk about some basic protection you have in Texas from lawsuits.
Texas does offer what is called a homestead exemption. Now most people today know about the Homestead Exemption, but only for the tax break it gives you if you file.
There’s also another very important reason you want to Homestead your home— because it can also help protect you from having to sell your house to pay for a lawsuit.
It’s great to have this option in Texas, but the homestead exemption only applies to your primary residence and some personal property in your primary home.
Secondary homes do not qualify for the homestead protection. Neither does the personal property in these homes.
This means any secondary home you own: a lake house, a cabin in the woods, rental properties, and other investment properties such as undeveloped land are all at risk.
In Texas, you can keep one car per driver in the household, but if you have more than one vehicle per driver and/or any recreational vehicles, you could be forced to sell them all to pay damages.
This includes boats, motorcycles, ATVs, jet skis, collector cars, RVs, travel trailers, and even golf carts can all be lost.
Your qualified retirement and/or college savings accounts will probably be secure as well as annuities and any cash in your life insurance policies.
But settlement payment plans could keep you from being able to contribute any additional planned monies to your long-term savings accounts.
Can you imagine, if instead of contributing to your retirement accounts for the next ten or twenty years, you had to make yearly or monthly payments for the settlement?
What would that do to your retirement goals? On top of this, any cash, say in savings accounts or checking accounts is all at risk you to a settlement.
These are some of the basic things that could be at risk should you face a personal injury lawsuit.
Not to mention attorney fees and court fees which could run in the tens of thousands just to fight the case, even if you won!
Needless to say, just one of these things could change your financial outlook for the rest of your life.
How an Umbrella Policy Protects You
We’ve talked about what’s at risk, now let’s compare what a basic $1 million umbrella policy would cost you in yearly premium.
This policy can extend over your home, autos, drivers, and any secondary homes you own.
It can also cover any investment properties you own as well as any recreational vehicles.
Most umbrella policies — just like the liability coverage on your home, autos, etc.,— will also pay for legal representation.
So for example, if you carry $500/$500 on your autos, and you get into a wreck and accidentally kill someone, with the umbrella coverage, you’re covered up to $1.5 million.
This liability coverage will cover medical bills, rehabilitation bills, funeral expenses, pain and suffering, lost wages, and the expense of legal representation to fight your case.
So how much would this umbrella policy cost you? The typical cost of a $1 million umbrella policy we quote here in our agency is $200 to $400 a year, depending on what you have covered under your umbrella policy.
That’s $17-$33 dollars a month that insures you don’t have to sell off any of your possessions, you don’t have to pay any legal fees, and you don’t have to worry about a long-term payout.
When you compare what could be at risk verses the cost of the premium, an umbrella policies just make sense.
When Should I Buy an Umbrella Policy?
Basically, when you have something to protect.
Do you have a savings account that you can’t afford to lose?
Have you worked hard to build up a portfolio of savings and investment properties?
Do you have a secondary home or recreation vehicles that are part of the way your family spends quality time together?
I think a few dollars a month for an umbrella policy is worth protecting.