Buying umbrella insurance coverage usually does not greatly increase the overall cost of home and auto insurance. Umbrella insurance kicks in after the limits of liability on primary policies are exhausted. To give you an idea of cost, in some states insurance on a $1 million home not located in a coastal area might run about $4,500 a year, and adding an additional vehicle could raise the cost of the package to $7,500. Purchasing $5 million in umbrella coverage might cost about $600 more, or about 8 percent of the total. In general, the cost of umbrella insurance is only a fraction of the overall cost for your coverage. When you have a lot to lose, in terms of your assets and property, the added protection you get from an umbrella policy can be crucial. Whether lawsuits are valid or not, you wind up having to defend yourself against them, and you never know how high the judgment is going to go. The possibility of losing everything you’ve worked so hard to afford is certainly something to consider. Being under insured can result in bankruptcy as well Insufficient coverage can be just as damaging. Having an umbrella policy with only $100,000 coverage won’t be much help if you get sued for much more because of an auto accident in which the victim becomes permanently disabled. Generally speaking, the first million in coverage is usually the most expensive, at perhaps $150 to $300 annually. Each additional million in coverage could cost you around $100 to $125 annually, depending on who is providing the policy. The rates per million declines as coverage increases, but at $10 million in coverage, the rate jumps because few customers buy that much, meaning insurers can spread their risk over only a relatively small group of customers. Rates are determined based on different factors The situation is often the reverse for the many insurers who specialize in middle- and lower-income clients. Often their rates shoot up after the first million in umbrella coverage because they have only a small group of buyers of umbrella policies larger than $1 million. A smaller pool of customers creates more risk per dollar of premium for an insurer, so the insurer has to charge more for the coverage. For a typical homeowner purchasing a $3 million umbrella policy from a middle-income insurer, the second and third million in coverage could cost him or him 3.5 times the rate for the first million of coverage. Thankfully, accidents resulting in lawsuits with judgments in the millions are not everyday events. When they do occur, however, the results can be devastating. Without an umbrella insurance policy you could be completely wiped out.
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