With a question about comprehensive coverage, your net worth doesn’t apply much. The question is about what you need to protect yourself, your assets and your family. This has more to do with your exposure and risk of loss than with the amount you have to lose. As for whether someone would need comprehensive insurance in this scenario, the answer is “maybe.” It depends on your current insurance coverage, additional coverage costs, and the specific risks you’re concerned about.
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What is umbrella insurance?
Comprehensive insurance is a secondary policy that kicks in after your primary insurance policy is exhausted. It covers any losses or payments beyond your basic insurance coverage.
For example, let’s say you have an auto insurance policy that covers up to $150,000 in liability and damages. You are considered at fault in a car accident with a driver suffering $95,000 in damages to his car, $155,000 in personal injuries, and lost wages.
Your insurance policy can pay the first $150,000 of this claim. After that, your umbrella policy can pay the remaining $100,000 that you may be personally responsible for.
Why get umbrella insurance?
The main reason to buy comprehensive insurance is third party liability. In general, you can know in advance the value of your property and assets, whether personal or real estate. Since this is known, you can purchase insurance to cover most cases of personal loss.
Liability is another matter. It is impossible to predict with any certainty the value of a third party’s assets or casualties. You might get into a car accident one day, or you might accidentally hit one of your guests at a party. Since accidents are impossible to predict, so are the costs and damages associated with them. This is where umbrella insurance comes in, because it covers you in the event of an unexpected liability that exceeds your policy coverage.
Most consumers who get comprehensive insurance will use it to supplement their auto or homeowners policies. Typically, you should have an existing primary insurance policy, as this will not serve as your primary insurance. For homeowners, this can supplement the coverage you receive based on your personal needs and mortgage requirements. For drivers, this can supplement the coverage you have based on your personal needs and your state’s minimum coverage laws.
Comprehensive insurance costs and coverage
Like all types of insurance, the specific costs of comprehensive insurance vary based on your policy and coverage needs. However, in most cases, individual umbrella policies provide liability-focused coverage. This means that your policy will usually cover a third party’s injuries, damages, and property losses. For homeowners, this coverage will typically extend to public liability protection, for example if someone sues for defamation.
This is why the need for comprehensive insurance has nothing to do with your personal wealth. The reason for comprehensive insurance is the risk of accidents and loss, not necessarily collectible assets. A person with $25,000 in cash is as much at risk of losing everything as someone with a million dollars. In fact, the more money you have, the less comprehensive coverage you’ll need, since you’re more likely to incur excess claims, even though comprehensive coverage can be expensive.
These policies do not typically protect your assets and personal property, as you are assumed to be pricing your own assets within your underlying insurance policy. They also typically do not cover intentional or criminal acts, and often do not cover cases of contributory recklessness.
Because these are high-coverage policies, you’ll typically purchase umbrella insurance in $1 million increments. While professionals such as doctors and lawyers typically have liability protection through their workplace, someone with a higher public profile or who frequently invites people onto their property is more at risk for lawsuits and therefore may want to consider more protection.
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Comprehensive insurance is a policy that provides you with additional coverage beyond your basic homeowner’s or auto insurance. Most policies are liability-centric, protecting you from third-party claims that exceed your policy maximums.
Insurance tips for homeowners
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If you own your own home, the right homeowner’s policy can make a big difference. It can save you money and give you peace of mind, so shop wisely.
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