I was leaving the emergency room at 3:30am a few weeks ago with a prescription for Ibuprofen and an $800 medical bill. Luckily, I was not seriously ill but I began to wonder with such a large bill what is the point of insurance. The idea of insurance is to pay a small monthly premium with the knowledge that if you have a catastrophic bill, insurance will step in and pay. Most of us carry insurance for different parts of our lives, from our primary residences to our personal cars. However how do you protect your personal assets against being sued? What would you do if you were sued for $1,000,000 for someone dying a car accident? Unfortunately, this low probability event would have an outsized impact on your financial future.
One solution that I would recommend is to get umbrella insurance. This insurance is relatively cheap ($150-$300/year) and can be used for any liability limits above other types of insurance such as homeowner’s or car insurance. If your net worth is higher than your insurance coverage limits, then you need umbrella insurance. In truth, what you are paying for is the insurance companies’ lawyers to defend you in case you get sued.
The easiest step to take is to talk with a current insurance provider (e.g. car insurance, homeowner’s insurance) and ask how much it would be to add a personal umbrella policy. The time to worry about insurance is before tragedy strikes.
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