What are the pros and cons of umbrella policies and what to watch out for? what questions to ask the agent?
First, the most important part of the umbrella policy is it is the most cost-effective financial tool to transfer your risk for a large covered personal liability claim. Do you know of any financial planner that you can give a check to for $525 and tomorrow, next week, next month or in a few months guarantee a payment of $5,000,000? This is an example of how much my policy would cost for a $5,000,000 limit. I don’t know any financial advisor who could transform $525 into $5,000,000.Second, you need to work with your current agent for home/auto insurance to avoid any potential gaps in coverage. An umbrella policy requires certain minimum amounts of liability on the underlying policies. Your current agent should be able to tell you those minimum required limits. You also want to make sure all your exposures have been identified on the primary layers of coverage so that the umbrella will also respond to a claim as long as all exposures are identified and covered by the primary policies. Finally, tell your agent your net worth and your annual income. Part of your income, I believe up to 25%, can be used to satisfy a legal judgment. This information about your net worth and annual income (spouses too) will help you and your agent have a meaningful conversation about what limit to choose for this coverage. I hope this helps.