So You Think You Are Prepared Financially?

What happens when you are sued for more than your basic homeowners or auto insurance policy covers and are found liable? Well, for most people, it would mean liquidating unprotected assets in order to satisfy the judgment. This may mean garnished wages, selling property, and possibly losing some of your investments. This is certainly a situation that could ruin your life, but there are ways to protect yourself.

A personal umbrella policy is additional coverage that goes above and beyond what your homeowners and auto insurance policies cover. Think of it as a protective umbrella that will pick up the damages once you have exhausted your coverage of those policies.

Your home is likely your most valuable asset-make sure it is properly protected. While insurance agents will help determine the kind of coverage you can buy, it is ultimately your responsibility to know what the policy covers. And remember, insurance agents are salesmen and typically work on commission. This isn't a bad thing, but be aware of what type of coverage you actually need so that you can spot it when you're being sold something you don't truly need.

This is one of the most important things to remember when planning for the "Golden Years" Protect your assets. Also, start thinking of ways to supplement your retirement income.

Lately, I've been looking at sources of passive income in order to bolster (and hopefully eventually replace) my current income. It is a fond dream that at some point in the future, I could largely step back from doing active day-to-day work and instead use these sources as my primary income stream. In that eventuality, I could devote my time to volunteer causes and charities I'm passionate about (and maybe have time to sit back and read a book for pleasure on a lazy afternoon every once in a while).

The mere act of owning many investments can be considered a source of passive income. You merely hold the investment and regular dividends are paid out to you. Many people tend to focus on investments in terms of the increase in resale value, but many others quietly hold stocks and bonds that pay large dividends, lining their pockets with capital gains. Look for individual stocks and bonds or index funds that pay good dividends, then sit back and watch the money roll in.

The internet, magazines, and books on personal finance are chock full of calculators and projections to help you figure out "your number" - the usually astronomical sum of money that it is allegedly going to take for you to live off your portfolio of securities, not work, and still maintain some semblance of the same lifestyle you had while you were working.

The exercise seems reasonable - necessary even - but the problem is that the results are almost entirely arbitrary, especially if you are more than 10 years away from retirement.

Any shift in any one of the variables can drastically alter the final figure that pops up, telling you how much you need to have saved in order to retire at X age or how much each year you need to be putting away.

If you have a portfolio you might want to rebalance it every so often. Rebalancing is the act of sitting down once per year and adjusting your portfolio toward your target asset allocation. Let's say you hold two funds because you want a 50% US stock exposure and 50% International stock exposure. During the last year, it is unlikely the funds have gained and lost exactly the same. So you end the year and US stocks have been up more than International stocks. Your current portfolio weight is 53% US and 47% International.

Doesn't sound like a big deal, right? Just 3%. Well, over time that gap can get larger and larger until one day you find yourself with a 75/25 allocation-way out of whack.

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Business Owner's Policy - BOP

Business Owner's Policy (BOP) refers to the insurance package, which is a combination of both property insurance and liability insurance. The reasonable price tag makes this option more attractive for the small businesses instead of buying separate policies for property insurance and liability insurance. Business owner's policy is not suitable for the large businesses because they do not fulfill the eligibility criteria for this policy. Insurance companies feel that large business involve greater amount of risk so they do not consider them for BOP.

Eligibility Criteria:

On the contrary, small and medium businesses are suitable candidates for business owner's policy. Eligibility criteria for this policy are liability limits, premises size, nature of the business and activities performed offsite. These factors along with financial stability, location of business, security measures, and quality of construction and possibilities of fire determine the price of the BOP.

There are vast variety of businesses are eligible for business owner's policy. Some of the examples are bakeries, fast food restaurants, convenience stores and restaurants providing fast food, wholesale and retail traders and many other businesses related with service industries. Interestingly, restaurants providing full services may be denied the advantage of this policy. Other businesses that may find eligibility difficult are bars, auto repair mechanics and manufacturers.

Let us discuss the property insurance and liability insurance separately. If you have property insurance, you are entitled to get the reimbursement for the losses to you business property. You have two options to choose from for property insurance. First is the Standard Form. In this option you will get compensation only if the losses have occurred due to certain predefined perils. On the contrary, if you choose Special Form, then you policy will cover losses due to any reason. However, make sure that no peril is specifically excluded in the policy. Not only the risk of your business property is covered, but the risk of machines and plants permanently installed like air conditioners, business inventory, furniture, and also property stored at other sites.

If you have the liability insurance, then the company will reimburse the amount if any visitors get injured at you premises or any of your products cause an injury to the customer. You can get some additional advantages by paying extra premium coverage like losses due to dishonest employees, Robbery, Burglary and mechanical breakdown.

Protecting business assets against loss is as important as the insurance cover for home and the contents. However, you need to make sure that the amount covered is not inadequate. Estimate both replacement value and actual value of your property. BOP also covers the losses occurred due to the damage to property or an instance of injury because either your business did something or it didn't do something.

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Umbrellas, They're Not Just for Fruity Drinks

Do you have a Personal Umbrella Insurance Policy? Why not?

If you own a home or rental property, have money in the bank (whether in cash, retirement accounts or trust), or have a decent paying job (or will in the future), then you should consider getting the added peace of mind that an umbrella can afford - and speaking of afford, it is the least expensive insurance policy you'll carry.

Most people realize these days that you can package your auto insurance with your homeowners/renters insurance and get a discount for that called a multi-line or multi-policy discount. The discounts vary from company to company but usually they are in the range of 15%. When you add an umbrella policy to the mix you can get an additional discount in most cases that makes the net-additional-cost really low.

Example:

Most umbrellas start in the range of $175-200 per year for the first million dollars of coverage. Say your combined auto and home insurance premium is $2,000 for the year. With an additional discount of 6% (using Travelers Insurance in this example) for adding the umbrella you save $120 off the premium of the auto/home policies. So if the cost of the umbrella is $200 for the year, when adding the multi-policy discount the net effect on your total rate is only an additional $80 for the year. Not bad when you consider you just doubled your coverage (in some cases tripled) for only $80 per year. It's an insurance no-brainer.

Of course these policies are underwritten and here are some of the primary factors that determine your premium:

The age of your children (think there's an increased risk if you have a teenage driver in the household?) Owning rental properties, boats or planes Having a pool Having an issue with your driving record Being a "target risk" (celebrities or star athletes)

Even with some of these potential additional rating factors the umbrella policy will be inexpensive compared to the relative increase in your coverages.

A few examples of how an umbrella would be beneficial.

- I have a son who recently graduated from college. While he was there for the last 4 years he was using one of our cars. My son was in a fraternity. According to my son, his chosen fraternity wasn't "fratty" like the rest of them were and none of the debauchery occurred at their house like the others. I'm not saying that isn't true, but for my peace of mind, I knew that with an umbrella in place, I could relax somewhat knowing we had the extra coverage. What would have happened if he ever made the unwise decision to get behind the wheel to get some more beer with his frat brothers and he accidentally hit a pedestrian while trying to rush through a light? Two days in ICU alone can cost more than $100,000.

- Say you're driving to work on the freeway, obeying all traffic laws including not talking or texting while driving, and you do a lane change into a motorcyclist who snuck into your blind spot when you weren't looking.

- You're having a holiday party and one of your houseguests slips on some spilled ice and takes a hard tumble. At first they just have a small cut above their eyebrow which is easily stitched up, but then 2 weeks later their vision begins to blur and they might have something much more serious going on. What if that same person was medically uninsured? Who is going to pay?

- What if you're blogging about somebody and you get sued for "defamation" or "reputational injury" because they didn't like your unflattering remarks? These types of lawsuits are getting increasingly popular.

Will an umbrella keep you from being sued? No, there are never any guaranties that an overzealous person might still try to sue you for some astronomical sum, but having the extra coverage will give you the peace of mind that most accidents, even a catastrophic one will be taken care of with your umbrella.

A lot of clients over the years have asked "how much coverage is enough?" and I always reply "$1 more than you'll need." In other words, there is no way to know for sure how much you'll be sued for or how much coverage will be enough. You should work with your insurance agent to discuss your individual needs and purchase as much coverage as you can afford - and do it in a strategic way to maximize your savings through multi-policy discounts.

So this evening while you're enjoying that fruity drink with the umbrella consider what an umbrella of a different kind can do to protect your financial future.

(Note - Umbrella policies require minimum requirements of underlying coverage; usually 250k/500k on your auto insurance policy, and $300k on your home insurance and rentals. This can add a small amount of premium to your policy if you aren't already insured for that amount.)

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Five Reasons Why You May Need A Liability Umbrella Policy?

Have you ever wondered if you might need an umbrella policy? What is an umbrella policy designed to protect? What factors should I consider before buying one? The answers to these questions and more are waiting for you inside this article.

As a financial adviser, I often review client insurances for adequacy, cost effectiveness and proper type. One of the most commonly overlooked protections is a personal liability policy or an umbrella. Many people are not quite sure what it is or if they need one.

An Umbrella or personal liability policy is usually an all risk, all peril policy with coverage limits that start at $1,000,000. There are some very specific reasons that you might want to consider purchasing an umbrella and there are also some adjustments that you will want to make to your homeowners and auto insurance if you do.

Reasons To Purchase An Umbrella:

1. Children Driving: One of the simplest reasons to purchase a liability umbrella is if you have young children that are learning to drive or are under age 25. This age drivers are the highest risk drivers for a reason. They are inexperienced, easily distracted (friends, cell phones, texting, etc.) and statistically are involved in more accidents than any other age group. An umbrella policy will cover them all and protect you from losing everything if one of your children happens to cause a serious accident.

2. Assets To Protect: Most homeowner and auto policies have a maximum liability coverage of $500,000. But if you have assets in excess of this amount, you are exposed to a potentially higher liability problem if someone decides to sue you. Maybe you were involved in a car accident or someone slipped on your property, etc. If they sue you for more than the $500,000 and win, it will come out of your pocket or you may have to sell some assets. If your net worth is over this limit, consider purchasing an umbrella policy for the appropriate amount.

3. High Profile Income or Career: Another reason to consider is if you are in a high-profile profession where incomes are typically high. Someone may think that you are wealthier than you are just because of your title or profession and may be more inclined to sue for a larger amount.

4. Litigious Society: Today we live in an extremely litigious society. Lawyers are suing for larger and larger amounts and if you bear any liability, they are winning. Even if you are not liable, the legal defense fees are expensive. Some say that having a million dollar umbrella causes attorney's to sue for more. This may be true, but if you need the protection, it is better to buy the policy and hope you never use it, than it is to need it and not have it.

5. Cost Savings Adjustments: If you decide to purchase an umbrella, you can reduce your overall cost by doing the following. First reduce your homeowners and auto liability limits to their minimum allowed. This may be $100,000 instead of $500,000 and this will save you some premium dollars to offset the cost of the new policy. Next consider increasing your deductible amounts from $100 to $500 or $1,000. This will also reduce your premiums, but remember that if you make a claim, your new higher deductible will cost more.

Summary: For many families today, young drivers, increasing net worth and higher incomes make personal liability protection a necessity rather than an option. The additional cost is not outrageous, usually $300 to $800 annually and if you make some adjustments to other policies, you can possibly cut your extra out-of-pocket cost in half. Make sure that when you look at your overall financial situation and your risk management strategies, you carefully consider this one.

To discover additional financial and income tax strategies, check out my blog or download your FREE Wealth Expansion Kit by clicking here. The first step to creating wealth is knowing where you are and then charting a path that will enhance your financial strengths and correct your weaknesses.

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Understanding Personal Umbrella Policy

What is an umbrella policy? Do you need an umbrella policy? These are reasonable questions for everyone to ask. This article will go over the basics of an such a policy and what it can provide.

An umbrella policy covers above the limits of liability you have on all your personal policies. It gives extra coverage to others for liability, it does not give any extra coverage to you. It also provides this extra coverage to any and all of your personal policies. It is up to a limit you chose, usually starting around $1 million. This means your home, rental properties, cars, and toys are all able to draw extra coverage from your umbrella policy. One thing to consider is that your insurance company requires higher limits of liability on all your personal policies before they will offer you an umbrella. The limits required are usually around $250,000 of bodily injury protection per person and $500,000 per accident. Each insurance company is a little different, you'll need to check with them to see what is required.

We'll use an example to demonstrate how an umbrella can protect you. While driving your car you lose control and cause an accident with many people seriously injured. The total amount for all the medical bills comes to $750,000, but unfortunately you only have insurance to cover $500,000. At this point your umbrella policy will kick in to cover the additional $250,000.

So do you need an umbrella policy? That is a question you'll have to answer for yourself based on your situation in life. Typically, the average person does not carry such a policy. Those who do have umbrella's usually have "a lot to lose" or substantial assets.

This policy is extra protection for you so you don't lose all your assets and wealth to a lawsuit. Remember it provides extra coverage above the liability limits on your personal policies. If you decide to look into getting an umbrella policy, a local insurance agent is a great place to start.

Why You Should Consider Umbrella Insurance   A Great Reason to Get a Personal Umbrella Policy - Your Car Is a Lethal Weapon!   Income Protection Insurance: A Boon for the Salaried Class