Should Retirees Get an Umbrella Insurance Policy?

Entering retirement is an exciting milestone after years of hard work. You’ve accumulated savings and assets to support your golden years. But what would happen if an accident leads to a major lawsuit that threatens to wipe out everything you’ve built? This is why umbrella insurance is an important consideration for retirees.

What is Umbrella Insurance?

An umbrella insurance policy provides supplemental liability coverage above and beyond your existing auto, homeowners or renters insurance. It kicks in when those primary policy limits are exhausted, protecting your assets if you are sued.

For example, if you cause an accident that leads to $500,000 in damages but your auto insurance covers only $250,000, the umbrella policy would cover the additional $250,000 so your personal assets are not at risk.

Why Retirees May Need More Coverage

There are a few reasons retirees should consider an umbrella policy:

• You have more assets at risk – Your retirement savings and accumulated wealth over decades need protection if sued.

• Judgments can exceed primary policies – Average auto liability limits of $250,000 or home liability limits of $300,000 may not be enough.

• Future earnings no longer a buffer – You can’t rely on future salary to pay a judgment since you’re no longer working.

• Risk factors change – Things like decreased driving ability, more travel and increased time caring for grandkids can raise risks.

• Peace of mind – Knowing you have ample coverage for the unexpected provides comfort in retirement.

Umbrella Insurance Basics

• Provides $1 million to $5 million (or more) in extra liability coverage.

• Costs $150-$300 per year for $1 million in coverage.

• Attaches above existing auto, homeowners/renters and watercraft policies.

• Covers legal defense costs, settlements and judgments.

• Protects against risks like injuries, libel/defamation, invasion of privacy.

• Excludes coverage like divorce, child custody, broken contracts, business pursuits.

Who Needs Umbrella Coverage?

Umbrella insurance is recommended for:

• Homeowners – Especially important for retirees with assets to protect.

• Auto owners – Primary policies may not be enough if you cause a major accident.

• Renters – Still carries risk of liability for injuries or property damage to others.

• Those with teenagers driving – Teen accidents more likely to exceed primary policy limits.

• Child caregivers – Covers injuries to children under your supervision.

• Travelers or snowbirds – Out-of-state incidents would be covered.

• Volunteers – Add protection against liability in volunteer roles.

• Airbnb hosts – Primary policies may exclude rental activity.

• Vehicles owners – Boats, RVs, ATVs often have lower liability limits.

• Cyclists – May need coverage if bike accident exceeds your other policies.

• Pet owners – Dog bites or other pet incidents open up liability.

Asset Protection for Retirees

A major lawsuit settlement has the potential to decimate even well-funded retirement savings. Situations where umbrella insurance can protect retirees include:

• Causing a multi-car accident that injures several people

• An injury to a caretaker, aide or visiting nurse in your home

• Your dog biting and seriously injuring someone requiring surgery

• A guest slipping and falling on your property and suffering a brain injury

• Hitting a luxury vehicle and causing significant damage

• Your car being hit by an uninsured driver with major medical bills

• Facing a lawsuit against a nonprofit board you serve on

Umbrella Insurance Case Study

Richard is a 75-year-old retiree in Florida with a net worth of $1.5 million. He carries the state minimum auto liability limits of $10,000 per person and $20,000 per accident. While driving, Richard turns left and crashes into an oncoming car, injuring a mother and two children.

Their medical bills and lost wages add up to $300,000. Since Richard’s liability coverage falls way short, the family sues him for the full amount.

Thankfully, Richard had a $1 million umbrella policy. His auto insurance covered the first $20,000, while the umbrella policy took care of the remaining $280,000 so his personal assets remained protected.

Key Factors in Purchasing Umbrella Insurance

If you determine an umbrella policy may be beneficial, here are some factors to consider:

• Available limits – Choose enough coverage to fully protect your assets. Limits usually start at $1 million.

• Required underlying coverage – Most require at least $250k/$500k auto and $300k homeowners liability.

• ** exclusions** – Review for any excluded risks like boats, trampolines, pools, etc.

• Reputation and financial strength – Choose a carrier that will be there if you need to file a claim.

• Cost – Comparison shop for the best rate based on your unique risk factors.

• Ease of purchase – Many carriers allow easy online quotes and policy purchase.

• Discounts – Look for ways to lower cost, like bundling with other policies.

• Policy management – Find an insurer that allows easy annual reviews and adjustments.

Shopping for Umbrella Coverage

Most major insurance companies like State Farm, Allstate, Farmers, Progressive and Geico offer competitively priced umbrella policies. You can also purchase from a specialty insurer like Chubb or Pure Insurance.

An independent insurance broker can be helpful to compare quotes across multiple carriers and find you the right balance of price and coverage.

The Takeaway

Protecting your assets is a key part of enjoying a worry-free retirement. While no one expects accidents or lawsuits, they happen every day and can potentially wipe out a lifetime of hard work and savings. An umbrella policy is an affordable way for retirees to get peace of mind and help ensure savings will remain intact, even in the worst-case scenarios. Discuss options with your insurance agent or broker today.