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Create an Umbrella of Protection for your Money

A couple worked their entire lives, saved diligently, and accumulated enough money to retire. However, they had a specific goal in mind and decided to work for five more years to achieve it.

While driving home from dinner one night, they caused a crash that killed a 30-year-old married father of two who earned $50,000 annually. Imagine the financial toll that left on this man’s wife and children. His family sued the couple and won.

That crash changed two families’ lives forever and left the at-fault couple with a goal that never will be met.

How well protected are your assets if you were in this situation?

A sound financial plan should address protection from the catastrophic things that, although unlikely, would alter your financial picture if they occurred. One way of addressing the unexpected is through an umbrella insurance policy.

Umbrella policies explained

An umbrella policy is an additional coverage layer over your homeowners and automobile insurance, says Tony Smith, founder of Chrinco, an insurance agency in Melbourne, Florida.

The maximum amount of liability coverage you can buy in a homeowners insurance policy is roughly $500,000. For auto liability, it’s roughly $250,000, Smith says. An umbrella policy is sold in blocks of $1 million in additional liability coverage and kicks in if you run out of coverage on your home or auto policy. This policy also can help cover your legal fees.

Without this policy in place, the couple in my story was left vulnerable after exceeding their liability coverage.

Without an umbrella policy, you may have to pay for your own legal defense, and you could be responsible for any amount beyond what the insurance company paid on your behalf if the person suing you wins their case.

If you don’t pay, your bank accounts could be levied, liens could be placed on the property, and wages could be garnished.

What will they come for first?

Put yourself in this couple’s shoes. Where do you think attorneys would turn to settle this suit? Your home and your qualified retirement plans set up under the Employee Retirement Income Security Act are protected assets, but individual stocks, anything in non-retirement accounts, and properties in addition to your primary residence are vulnerable. After that, attorneys look at your income. 

The purpose of qualified retirement plans is to generate income when you retire. As soon as you withdraw money from those plans and deposit it into your bank account, it may not be protected from garnishment. 

Protect Yourself

Ask your financial advisor or insurance representative to review your insurance policies to determine whether you are covered at the appropriate levels to add an umbrella policy to your coverage.

For those who have assets totaling more than $3-$5 million, Dave Ramsey offers some additional risk management advice in this clip.

Going through a lawsuit isn’t easy, but it’s easier going through it when you know you’re protected. I want that peace of mind for you.

March 2022


Tony Smith, Chrinco, and Dave Ramsey are not affiliated with or endorsed by LPL Financial or Allen & Company. 

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact an insurance agent or visit your state’s insurance department for more information. State insurance laws and insurance underwriting rules may affect available coverage and its costs. 

Any insurance guarantee is based on the claims paying ability of the issuing company. Investing involves risk including loss of principal.

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