Life isn’t predictable. If it were, planning retirement
would be easy. The truth is, unexpected things can (and do) happen every day,
and sometimes they can threaten our retirement plans. We can’t predict the
future, but we can do the next best thing: Be prepared.
When your retirement is on the line, having protection for
your nest egg in the form of umbrella insurance could make all the difference.
Read on as we break down what umbrella insurance is, how it works, and why it
should matter to you.
What is Umbrella
Insurance?
Let’s say your retirement is five years out. You have a
healthy foundation of savings, built over many years of hard work. By all accounts,
you’re on the right track. Then, on the drive home from work, you have a
collision with another vehicle and are held liable for the other driver’s
injuries and damages. Your third-party auto insurance covers $500,000, but the
claim is for $750,000. That extra $250,000 will have to be provided
out-of-pocket — unless you have umbrella insurance.
Umbrella insurance is extra liability insurance that kicks in
if a claim or lawsuit exceeds the coverage limit of any of your relevant insurance
policies, such as homeowner’s, renter’s, or auto insurance. Instead of coming
directly out of your nest egg (and potentially setting back your retirement),
the remainder can be covered by this “backup” insurance, helping to protect your
retirement savings.
It’s not just for car accidents, either: Umbrella insurance
provides liability coverage for injuries, property damage, personal liability
situations, and certain lawsuits.
Should I Get Insured?
There is no bad time to start protecting your assets. For
individuals planning their retirement, umbrella insurance is an effective
failsafe that can prevent a claim or lawsuit from derailing their long-term
plans. For retirees, umbrella insurance protects the funds that will carry them
through their retirement – something that can be hard, if not impossible, to
recoup once lost.
Getting Coverage
Because umbrella insurance is extra coverage, you will need
to already have an auto or property policy to purchase a plan. Most major
insurance providers offer umbrella policies, but will probably want you to have
a policy with them before you purchase any extra coverage. Check with your
provider or talk to your financial advisor to get a clear understanding of your
situation.
Policies are typically sold in $1 million intervals. Like
any other type of insurance, there is no one-size-fits-all rule for how much
umbrella coverage you need. However, financial advisors recommend purchasing a
policy valued at as much as an individual’s net worth, and purchasing
additional coverage if they have assets that would demand additional coverage,
such as rental properties.
When we’re dealing in multi-million dollar policies, it’s
normal to expect sky-high costs. Thankfully, because umbrella insurance is only
used when an individual reaches the limit of their main insurance policy, insurance
providers offer it at relatively low prices for the amount of coverage offered.
Of course, how much your policy will cost will depend on
your provider and your own financial situation, but typically the first $1
million of coverage costs $150 to $300 annually. Additional coverage usually
adds another $50-$75 to the annual fee, per each million.
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Retire Confidently
At the end of the day, most people who purchase umbrella
insurance will never use it — and that’s a good thing. However, as we prepare
for retirement, it’s important that we do it confidently and with the peace of
mind that, no matter what life throws at us, we are prepared. Sometimes,
finding that confidence is easier said than done. It’s at those times that
having a financial advisor by your side can make all the difference.
For decades, the Retirement Experts at Baird Retirement
Management have helped oil, gas, and chemical professionals make sense of
retirement. We’re ready to work with you.