So, this is the time of year when IRS notices start pouring into mailboxes. And while the IRS has put a hold on a lot of those, some are still trickling through.
And no one likes getting them.
The problem right now is that the IRS is still in “treading water” mode as they try to manage a 16+ million return backlog and stay on top of processing this tax season’s filing. It’s inevitable that they miss amended returns and communication about those notices because they’re piled up with hundreds of thousands of others. There are corrections galore that still have to be looked over and updates made in the IRS’s system.
I would like to say, be patient. But also…
If you received a notice from the IRS and want to discuss it, my team and I are ready and willing to investigate and get things sorted out:
waterbury-cpa.com/schedule/
Now, let’s get to today’s topic. It seems like we are constantly shelling out for various insurance policies: car insurance, health insurance, life insurance, homeowner’s insurance, cell phone insurance, and so on.
And it can be so tempting to avoid paying for yet another type of insurance, especially if you think you’ll never actually need to make use of it. But, as many find out, in some situations an insurance policy may not cover the entirety of a given situation.
So, today I want to talk about when accidents, injuries, or other beyond-your-current-insurance-limit occurrences “pour” on your life.
Emelia Mensa, CPA’s Case for Umbrella Insurance
“Don’t let a man put anything over on you except an umbrella.” – Mae West
You’re at fault in a car accident and the other driver or a passenger is badly hurt.
Or your teen throws a party and a guest is injured tripping over that floorboard you’ve been meaning to fix.
Your dog bites the lawyer who lives down the street …
These are terrible situations, for obvious reasons, but also considering today’s medical prices.
Heaven forbid you ever do get sued, but if you do at least there’s a good chance that the damages will exactly equal the amount of your insurance coverage …
I hate to say it, but file that under “Yeah, right.” Scads of people get sued every year – only to find that the insurance falls short of taking care of the full damages.
What do you reach for when it starts sprinkling? A jacket. What do you reach for when it starts raining hard? An umbrella.
The same might be true of your insurance.
Whole lotta claimin’ goin’ on
You probably have more than one type of insurance but homeowner’s and auto insurance are likely the ones you’ll need if you get sued (there’s also professional liability insurance for doctors, accountants, lawyers, and the like – they’re a whole different insurance animal but lawsuits can catch those policies short, too).
Every year, about one in more than a thousand homeowner’s policies has a liability claim related to lawsuits for bodily injury or property damage that the policyholder (or family members) cause to others. Car insurance claims also total in the hundreds of millions each year. That’s a lot of money out of pocket.
Enter umbrella liability insurance, which supplements these kinds of liability policies when a lawsuit or other cause exhausts the benefits of those policies. Some umbrella policies can also expand coverage to other damages that underlying policies don’t cover and also help pay legal fees.
What are the odds you’re going to need that? Weeellll…
Checked the price of even a simple hospital visit lately?
When was the last time you looked at your insurance paperwork?
And your big question: What if your policies don’t cover your possible damages?
Something to consider when you think about adding this extra layer of protection. If you’ve got half a million in coverage, for instance, and you get sued for a million, an umbrella policy can cover the rest, minus what you pay for your deductible.
Umbrella insurance covers not just the policyholder, but also other members of their family or household and injury to others or damage to their possessions. It can also cover malicious prosecution, wrongful entry, invasion of privacy and other unforeseen dangers.
Risky business
Whether you need umbrella coverage depends on the value of your possessions, the limits of your current insurance, and the risks that you face.
It’s key not to give in to fear (and the hard sell of the insurance industry), but a good place to start is your current coverage. Dig out the homeowners and auto/liability insurance paperwork and see if your financial protection – probably purchased and set a long time ago – needs to be increased.
Next, ballpark your liquid assets: bank accounts, retirement and college savings, investment accounts, home equity, and so on. What kind of a hit could you take and not wind up on the street?
How much are you at risk? Do you own a lot of property? Have a teenage driver? Own a swimming pool? Are you somebody well-known enough, even around the Connecticut area, to ignite a lawsuit? (Note: A personal umbrella policy usually won’t work well for professional liability coverage.)
How much is it?
Coverage typically runs about a million dollars on umbrella policies, though it can be more. Costs start, generally, at only about the low three figures a year. Cost also depends on how much umbrella coverage you purchase, your state, how many things you want to insure, and your overall risk.
Conditions can include that you maintain adequate coverage on your other policies. You may also have to buy your umbrella coverage from the same insurer that provides your other policies.
If umbrella insurance comes in too pricey, you can try bundling policies, getting endorsements to your other policies to up your liability limits, or looking into straight excess liability coverage.
Umbrella policies also won’t cover:
- Damage to your own property. It’s a liability policy, so it will only cover you if you’re responsible for damage to someone else’s property.
- Intentional damage
- Liability you agreed to, such as in a contract.
- Certain high-performance cars, like a Lamborghini.
Certain professionals can’t get umbrella policies. Nor can owners of some dog breeds (dog bite suits run into the millions of dollars every year, too) or those with some preexisting lawsuits or criminal charges.
By the way, you can still be sued beyond the limits of umbrella coverage. Sorry, but there’s no magic bullet when it comes to lawsuits.
Taxes may be our bread and butter, but we’re always here to help our friends in any way we can. Give my office a shout if you want to talk more about umbrella insurance or any topic:
On your team,
Emelia Mensa, CPA
