Without umbrella insurance, what’s at risk?

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Dear Insurance Adviser,
I am considering an umbrella insurance policy and wondered what assets would be vulnerable without it? For example, could my 401(k) or individual retirement accounts be at risk, or just my personal property and bank accounts?
— Bonnie

Dear Bonnie,
The type of assets that can be seized, or “attached,” as a result of a judgment against you in excess of the liability limits of your insurance policies varies by state. But as a general rule, your retirement accounts are exempt from attachment. So is your residence, except that a lien can be placed on your equity so that the judgment is paid when your house is sold — essentially making you the equivalent of a renter.

But personal property, including automobiles, can be attached, along with bank accounts and investments. And your wages can be garnished. To see what the rules are in your state, consult an attorney.

It’s good that you’re looking into an umbrella. But I want to remind you that major lawsuits are only one of six major risks that can cause serious financial hardship. The others are: major medical bills; long-term disabilities; long-term care; major damage to or destruction of your home; and premature death. A well-balanced insurance program covers all of these major loss areas with high limits across-the-board. A common mistake people make when they buy insurance is to have too much in some areas and not enough in others.

So Bonnie, before you spend the money for an umbrella policy, make sure the other major risk areas in your life are covered. That means, for example, to buy long-term disability insurance if you don’t have it already.

Best wishes.

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