There are many types of insurance policies floating around out there and it can be overwhelming to figure out what makes sense for you. Health insurance, life insurance, disability insurance – oh my!
One often overlooked insurance coverage is the personal liability umbrella policy, aka PLUP. The benefit of a PLUP is that it can provide extra liability coverage that goes beyond the limits of your other policies. Although just about anyone can benefit from extra coverage, it’s especially important for those with an overall net worth (what you own minus what you owe) north of ~$500k, or who earn over $200k/year.
As your net worth rises, you will want to protect your assets from a potential lawsuit. It is pretty cheap compared to other types of insurance (maybe $20-$30/month for $1MM in coverage). It protects you from claims larger than what your auto and homeowner’s insurance will cover. It’s a small price to pay to have peace of mind.
Think of it like this… if you are responsible for a 5-car accident and your auto insurance coverage isn’t high enough to replace all five accident victims’ vehicles, you are on the hook to pay out of pocket for damages. On the other hand, a PLUP could kick in and absorb any losses up to $1MM.
Remember that most retirement accounts, such as 401(k), 403(b), and pension plans, are protected from seizure. This even includes your contributory traditional and Roth IRAs, up to a limit ($1MM). So, what is considered fair game for a lawsuit settlement?
- Checking and savings accounts
- Investment accounts
- Inheritances
- Personal homes (though there may be limitations on the homestead)
- Rental and investment properties
- Vehicles
- Business properties and equipment
- A portion of wages
- Assets transferred to another person
- Assets owned by a spouse
- Jewelry and collectibles
- Artwork
At a minimum, ensure the coverages and limits on your auto and home are sufficient. This will help protect you from things often beyond your control. We all have “rainy days”. An umbrella policy can be an affordable way to shelter you from the storm.
