photo credit: mari_isabel20 Just as important as amassing assets is protecting them. This is the primary purpose of insurance. By paying premiums, you are paying someone else to assume the risk (of death, disability, damage, etc.) and allow you to protect your assets. Most people believe they need health insurance, auto insurance and homeowners/renters insurance. However, most neglect another type of valuable (IMHO) insurance – umbrella insurance.

I had researched umbrella insurance last year but found that insurance companies believe that owning/operating a motorcycle is a great risk. Go figure – LOL. Therefore, in order to obtain umbrella insurance, I would have had to significantly increase the insurance coverage on my motorcycle (liability only) and my umbrella insurance premiums would have been quite high. Now that I’ve sold my motorcycle, I decided to call my insurance company once again.

But before I get into that, let me explain what an umbrella insurance policy does.  It provides liability coverage above and beyond the limits of your current insurance (i.e. homeowners/renters and auto).  As an example, let’s suppose you cause an auto accident and are held liable for $200K of damages.  If your auto policy limit is only $100K, then you are personally responsible for the remaining $100K.  Not fun, huh?  Being held liable can easily bankrupt people.  Even if you don’t go bankrupt, a large portion of your assets can be taken from you.  I definitely don’t want that.  Hence, the need for umbrella insurance.

Most umbrella coverage is a minimum of $1M so that’s what I requested when I called my insurance company last night.  However, as my assets grow, I will re-evaluate that amount.  I was asked a series of questions designed to assess whether or not I’m ‘high risk’.  Some of the factors that comprise high risk are owning boats/motorcycles/rental property.  That’s not to say you won’t be able to obtain coverage but your premiums will also be higher.  Certain professions are deemed high risk as well – anyone who holds public office or sits on a board of directors as well as journalists (sorry Frugalista!).  Also, held in consideration is whether or not you own any ‘dangerous’ pets such as Rottweilers or pitbulls.

After passing the battery of questions, the agent evaluated my auto coverage.  My policy limit was $100K/$300K but I was told I would need to increase that to $300K/$300K in order to obtain umbrella coverage.  I guess $300K is the magic number at which they feel comfortable providing coverage.  That change increased my auto policy by $84/year.  The umbrella policy is $252/year.  So the grand total for $1M of protection is $336/year or a mere $28/month.  To me, that’s a small price to pay for peace of mind.