While April might be the rainy season, it’s always good to have an umbrella handy when you need one. You know, in instances where your dog might bite a guest at your home, or your teen driver causes an accident that results in severe injuries to others, or simply because you have a pool, trampoline, boat, and a four-wheeler that your children use with their friends.

You see, I’m not talking about the weather. I’m referring to an Umbrella Insurance policy, also known as a personal liability policy. Everyday activities that you and your family do expose you to liability perils. In these instances, you may be covered to a certain extent by a homeowner, auto, or recreational vehicle policy; however, what about that one time that an accident happens, and the damages exceed your liability limits on your policy?

Imagine your children and their friends are playing in the backyard with the dog. Around 5 p.m., one of the friend’s dad comes over to pick up his son. Remember, these are children, and they don’t want to stop playing. As dad grabs his son by the arm, and the child wails even more, “Come on dad! It’s still light out! Can’t we play longer? I don’t wanna go!” Parents have all been there, right?

Your dog knows the child—they’ve been playing together all day; however, this man taking the child is a stranger who is “hurting” his friend. Your dog misinterprets the interaction between father and son, and things escalate quickly. Your dog bites the father. Your homeowner policy should respond if you are found liable for accidents that happen on your property.

Unfortunately, it just so happens that the dad is a dentist, his hand requires surgery and rehabilitation, and he is unable to work with the injury to his hand. Compounding the situation, the friend’s parents are divorced, and the father owes a hefty child support payment each month, which he won’t be able to pay since he is not working while he recovers. His claim is well above your insurance policy’s liability limits, and you are responsible, even if the policy limits are exhausted. This is when an umbrella insurance policy can kick in.

Umbrella policies provide coverage against catastrophic liability exposures by extending the coverage provided in your automobile and homeowner policies by adding a million, or several million dollars, more to the policies’ liability limit. The policy also covers legal defense costs. That might sound like a lot more than you think you need; however, real life claims examples may tell otherwise.

These policies can also cover personal injury claims, including libel, slander, and invasion of privacy—be careful what you or your children say on social media! With any sort of judgment against you, not only your current assets, but your future earnings could be at stake. A licensed insurance agent can assess how vulnerable you are due to your unique circumstances and make a recommendation on the appropriate limit.

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William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a Certified Financial Planner™ professional.

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