retirement

Retirees, Cover Yourself With Umbrella Insurance

You may not realize you don’t have enough liability coverage until something catastrophic happens.

Maybe it’s the zip line you put up in the backyard, hoping to provide some fun and exercise for your grandkids and their friends. Or the times when you rent your home as an Airbnb. Perhaps it’s because of your position serving on a local nonprofit or even posting a negative review of a local restaurant.

Insurance is made for the unexpected in life, but you may not realize you don’t have enough liability coverage until something catastrophic happens, especially the situations you never thought to anticipate. The neighbor’s child falls from your zip line and breaks his arm, requiring extensive surgery. Your Airbnb guest slips on your stairs. Your nonprofit gets sued, or that restaurant you didn’t like hires a lawyer.

Consumers are often surprised by circumstances that can lead to their personal liability exposure, as well as the extent of that exposure, says Elyse Foster, a financial planner with Harbor Wealth Management, in Boulder, Colo. And they sometimes also wrongly assume their home insurance or auto insurance would be enough to cover their expenses if accidents happen or they get sued. “You really need to be prepared,” she says. “People often think, ‘I don’t have enough money. No one’s going to come after me.’ But they will, and they do.”

One option for liability worries is umbrella insurance, which is extra coverage that some consumers don’t realize is available, says Neil Brown, a wealth manager with Burkett Financial Services, in West Columbia, S.C. Umbrella policies are relatively cheap, with a typical annual cost of about $150 to $300 for each $1 million of coverage. The coverage kicks in after home or auto liability limits are exhausted. You typically buy a separate umbrella policy from your current insurance carrier for extra liability protection beyond your existing home and auto policies. Standalone umbrella policies are not common, but you may find one by shopping around.

People tend to understand insurance when it comes to something tangible, such as their car, but replacing or repairing their financial well-being can seem like an abstract notion, says Sean Scaturro, USAA’s advice director. He had a former client, a woman in her eighties, who declined to buy umbrella insurance and hit the gas instead of the brake while driving, racking up at least $350,000 in medical claims after injuring a young woman. That put all her assets, including her emergency cash and home equity, at risk. “This insurance provides more of that peace of mind that insurance is designed to do,” he says.

Coordinate Coverage

Usually bundling an umbrella policy with your other coverage will save you money on premiums, but be sure you coordinate all your coverage correctly, Brown says. Say your insurer recommends you have $300,000 worth of liability coverage on your home and auto, but you only buy $100,000 and then purchase a $1 million umbrella policy on top of that. If you are liable in a multi-car accident and you get sued for $1 million, your umbrella policy may only pay $700,000. If you had the recommended $300,000 coverage on your other policies, you wouldn’t have come up short, Brown says.

Umbrella policies are widely available through major insurers, so you can shop around to compare prices and coverage limits. USAA, for example, sells a $1 million umbrella policy with a cost of about $19 a month, Scaturro says. You can buy up to $5 million of coverage directly through USAA and the company can potentially partner with a third party for a policy with higher limits, he says.

When weighing whether to buy umbrella insurance, start by reviewing your home and auto liability coverage. Then, consider how much extra coverage you need to ensure that your combined liability coverage covers your total assets. Ask your current insurer how much it would charge to add umbrella coverage.

Be aware that if you pile up several speeding tickets or have other changes to your risk profile, you could lose your coverage. Also, if you add to your possible risks, such as putting in a pool, you need to update your insurer. If you don’t, you may not qualify for coverage if something happens.

Most Popular

The 15 Best Stocks for the Rest of 2022
stocks to buy

The 15 Best Stocks for the Rest of 2022

The lesson of the past two years: Be ready for anything. Our 15 best stocks to buy for the rest of 2022 reflect several possible outcomes for the seco…
June 21, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Retirement Comfort: How to Avoid Running Out of Money
retirement planning

Retirement Comfort: How to Avoid Running Out of Money

When it comes to retirement planning, one thing all of us worry about is whether we will have enough money to last. Financial professionals can help y…
June 25, 2022

Recommended

33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
June 23, 2022
10 Most Tax-Friendly States for Retirees
retirement

10 Most Tax-Friendly States for Retirees

Moving to a low-tax state in retirement can help make your retirement savings last longer.
June 23, 2022
Taxes in Retirement: How All 50 States Tax Retirees
Tax Breaks

Taxes in Retirement: How All 50 States Tax Retirees

We rated every state, plus the District of Columbia, on how retirees are taxed. Some of the results might surprise you.
June 23, 2022
I’m Retired. Should I Pay Off My Mortgage?
retirement

I’m Retired. Should I Pay Off My Mortgage?

It’s a simple question. The right answer for you could depend on this: Where would you pull the money from to do it?
June 20, 2022