So far in this blog post series, we have learned about the types of creditors that could threaten any of your unprotected assets, the differences between protection in the form of exemptions versus limited liability entity structures, and in the last post we examined how certain exemptions are available in some states but not others. Today, we will spend some time delving into something we touched upon briefly once before: the danger of relying solely on insurance – specifically umbrella insurance.

If someone is hoping to sell you an insurance policy, then they are, by definition, trying to sell you a sense of security. The concept of an umbrella insurance policy, then, is an easy idea to follow – this umbrella policy will extend above and beyond your regular, standard policies to ensure that you are covered and protected from the unexpected bad weather that wasn’t forecasted and couldn’t have been predicted. This umbrella, in theory, will be there to cover you when the storm hits.

But for successful professionals and business owners who are appropriately concerned with protecting their assets from lawsuits and creditors, these broad strokes do not paint a complete picture. The truth is that umbrella insurance policies still have many exclusions, including errors, omissions, negligence, and more. And who ultimately decides what claims are covered, and what falls under “negligence” or “omission” and therefore is not covered at all? That’s right: the insurance adjuster, not you.

When you’ve been careful and purchased an umbrella liability insurance policy to cover what isn’t covered by your standard policies, and then it’s time to make a claim for what you are certain is a covered event, the shockwave of a denial can ripple through your professional and personal life, maybe even for years to come. Sure, you can always decide to sue the insurance company itself to try to get it to cover the claim, but that can take years of your time and lawyer’s fees, for an uncertain outcome in the end.

So, although getting additional protection by having an umbrella insurance policy is certainly not a bad idea, as those policies can and do pay out certain types of claims and extend award amounts of standard policies, this absolutely should not be considered the complete solution to managing your risk by any means. A full, comprehensive asset protection strategy needs to go beyond just buying an umbrella insurance policy, in case the wind simply turns it inside-out and you’re left standing there, as exposed to the rain as if you’d never an umbrella in your hand in the first place.