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Have you wondered why your agent at Franklin Insurance Agency asks you every few years if you want to add umbrella insurance? They probably ask when you renew your homeowner’s or auto coverage, the two most common primary policy types for a personal umbrella. They keep checking with you because, as people age, it becomes more important to have insurance that pays for a liability-incurred settlement.
Why Umbrella Coverage Increases in Importance After 40 Years of Age
Umbrella coverage increases in importance after a person turns 40 because at that age and older, a person may not have adequate time to repay themselves if they have to pay a settlement out of pocket. Let’s consider a fictional scenario at a person’s home in Rio Rancho, NM. In Scenario A, they’re 25 when the accident occurs, but in Scenario B, they’re 55. In scenario C, age doesn’t matter.
Scenario A
A 25-year-old homeowner’s insurance policyholder has a party at their home. At the party, a friend falls from the balcony and incurs serious injuries. The hospital bills cost about $150,000, and the homeowner’s policy only covers $75,000 of the settlement. The policyholder pays the other $75,000 by emptying their newly vested retirement account and savings and putting some of it on a credit card.
Because many people retire between the ages of 65 and 70, the policyholder has between 40 and 45 years to pay themselves back and go into retirement with their finances intact. It would take 21 years (376 months) of saving an extra $100 each month in an interest-bearing savings account with 4% interest to pay themselves back. That’s on top of their regular deposits for retirement, savings, etc.
Scenario B
The same situation occurs, but the individual hosting the party is 55 this time. They must pay themselves back before retiring; to do so, they must delay retirement until they’re 76. It still takes 376 months—that’s 21 years—of saving an extra $100 each month to save that amount.
Scenario C
In Scenario C, whether the individual throws the party in their 25th or 55th year doesn’t matter. They own a homeowner’s policy and an umbrella policy. They pay out of pocket for nothing. The homeowner’s policy pays out first. When the settlement exhausts it, the umbrella kicks in and covers the rest of the settlement. Umbrella policies typically carry a $1 million value, so exceeding the coverage limit is rare.
Contact Us Today
Call or email Franklin Insurance Agency today to set up your umbrella policy. Don’t go one day without this affordable liability protection that covers your liability in Rio Rancho, NM, and everywhere you travel, too.