P. Derek Ten Broeck Jr.
TB Group LLC
Here’s an interesting item from a website called consumerinsurancereport.com: “Research shows that the average driver gets in a car crash about once every 17.9 years. Therefore, if you begin driving when you're 16, you should plan on being in at least 3 collisions over your lifetime.”
The National Highway Traffic Safety Administration reports that in 2019, traffic crashes cost $340 billion. The total number of (police-reported) crashes that year was 6,756,084. That comes to $50,325 per crash. Given your allocation of 3, you can expect to pay $150,975 for car crashes in your lifetime.
Profiting From Your Insurance
If your lifetime of driving is 53.7 years (based on the assumptions of Consumer Insurance Report above), and you pay $1547 annually for car insurance (the average cost of a policy according to U.S. News), then you have paid $83,073 for insurance over your driving lifetime, or $67,902 less than your insurance company has paid for your three crashes. Ordinary car insurance, then, is quite a bargain.
Of course, the $50,325 average per crash hides an enormous range of costs. Some of those crashes might only cost a few hundred dollars. But some surely cost millions. Dollar calculations ignore the pain, suffering, grief, and lost income resulting from some of those crashes. And those cannot be ignored. Somebody pays for them. If you’re found to be at fault, that somebody is you.
The Limits of Your Insurance
A typical car insurance policy is limited to paying out $250,000 per injured person (up to $500,000 per accident) and $100,000 each accident for property damage, plus $300,000 in personal liability. That means the insurance company is on the hook for as much as $900,000 when you have an accident.
But accident attorneys are proud to tell you through television commercials and their websites that they often get multimillion dollar judgments for car crashes. If you want to know who pays the difference between the $900,000 the insurance company paid and the multiple millions the court ordered be paid, well, that would be you.
All of this is a fairly roundabout way to explain why you may need an umbrella insurance policy. An umbrella insurance policy is designed to protect you from lawsuits. It goes beyond the limits of your car or homeowners’ policies to pay what you owe when you’re found to be at fault for someone else’s injuries or property damage. Umbrella policy coverage is sold in increments of $1 million, usually starting with premiums as low as a few hundred dollars per year.
How an Umbrella Policy Protects You
An umbrella policy can help protect your assets, such as your home and your savings, when someone has a legitimate claim against you. (Note that your 401(k) is already protected by law, but your IRA isn’t, except for 401(k) rollovers.) Most umbrella policies also pay for things your underlying insurance doesn’t pay for, such as attorney fees or judgments against you in cases of libel or slander. If you never engage in libel or slander, that’s good. But what if you post a product review online, and the company that sells the product decides to sue you?
Here’s what an umbrella policy won’t cover: your own injuries, damage to your own property, damages your business is responsible for, criminal acts, or anything connected to a contract you have entered into.
Since umbrella policies are designed to protect your assets, the procedure for figuring out what you need is pretty straightforward. Add up the value of your assets, check your other insurance for liability coverage, and plan on buying enough umbrella coverage to make up the difference between what you own and what’s already protected. At TB Group, we can help you with that as well as the other ins and outs of umbrella policies. Click here to set up your consultation.