Tip: Before the Umbrella. Before becoming eligible for umbrella insurance, you may have to maximize coverage on your homeowner’s and car insurance policies, as these become deductibles to an umbrella policy.

In 2017, the U.S. had a record 11.5 million millionaires, up from 10.8 million in the previous year. An increase in personal wealth may bring greater financial flexibility; it may also bring greater liability. Individuals with high net worth, or those who are perceived to have high net worth, may be more likely to be sued. And personal injury claims can reach into the millions.¹

Umbrella liability insurance is designed to put an extra layer of protection between your assets and a potential lawsuit. It provides coverage over and above existing automobile and homeowner’s insurance limits.

For example, imagine your teenage son borrows your car and gets in an accident, seriously injuring the other driver. The accident results in a lawsuit and a $1 million judgment against you. If your car insurance policy has a liability limit of $500,000, that much should be covered. If you have additional umbrella liability coverage, your policy can be designed to kick in and cover the rest. Without umbrella coverage, you may be responsible for paying the other $500,000 out of pocket, which could mean liquidating assets, losing the equity in your home, or even having your wages garnished.

Umbrella liability insurance is usually sold in increments of $1 million and generally costs just a few hundred dollars a year. It typically covers a broad range of scenarios, including bodily injuries, property damage caused by you or a member of your household, even libel, slander, false arrest, and defamation of character.

Deciding whether liability coverage is right for you may be a question of lifestyle. You might consider buying a policy if you:

• Entertain frequently and serve your guests alcohol
• Operate a business out of your home
• Give interviews that may be published
• Employ uninsured workers on your property
• Drive a lot of miles or have teenage drivers
• Live in a manner that gives the appearance of wealth
• Have a dog, especially if the breed is known to be aggressive
• Own jet skis, a boat, motorcycles, or snowmobiles

Even if you don’t yet have a tent in the millionaire camp, you may want to consider the benefits of liability insurance. You don’t have to be a millionaire to be sued for a million dollars. Anyone who is carefully building a financial portfolio may want to limit their exposure to risk. Umbrella liability can be a fairly inexpensive way to help shelter current assets and future income from the unexpected.

This is a simplified description of coverage. All statements made are subject to the provisions, exclusions, conditions, and limitations of applicable insurance policies. Please refer to actual policy documents for complete details regarding coverage.

Who's Got What?

In 2017, there were about 31 million households in the United States whose net worth was in the $100,000 to $1 million range (excluding primary residence). Only 172,000 households had a net worth of $25 million or more.

Chart Source: Einnewswire.com, March 22, 2018

1. Einnewswire.com, March 22, 2018

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

Variable universal life insurance is permanent life insurance—it remains in force for the policyholder's whole life. And, as with universal life insurance, it provides a flexible premium and an adjustable benefit—meaning the policyholder decides how much to put in the policy above a set minimum. By extension, the policyholder also determines the face amount of the policy.

The difference between variable universal life insurance and other types of permanent insurance is that the policyholder directs how premiums are invested. This provides access to the potentially higher returns provided by the financial markets. It also means returns could underperform those provided by other life insurance products.

Generally, there are several subaccounts in which the policyholder may choose to invest. There may be a fixed-interest option as well as various stock, bond, or money-market choices. Guarantees are based on the claims-paying ability of the issuing company.

Like other types of permanent life insurance, policyholders can even borrow a portion of their policy’s cash value under fairly favorable terms. And interest payments on policy loans go directly back into the policy’s cash value.*

When the policyholder dies, his or her beneficiaries receive the benefit from the policy. Depending on how the policy is structured, benefits may or may not be taxable.

Variable universal life insurance has unique features that may be attractive to some insurance buyers. However, a variable universal life insurance policy also has options that must be clearly understood before an individual commits to a policy.

*Generally, loans taken from a policy will be free of current income taxes provided certain conditions are met, such as the policy does not lapse or mature. Keep in mind that loans and withdrawals reduce the policy’s cash value and death benefit. Loans also increase the possibility that the policy may lapse. If the policy lapses, matures, or is surrendered, the loan balance will be considered a distribution and will be taxable.

Accessing the cash value in your insurance policy through borrowing—or partial surrenders—has the potential to reduce the policy’s cash value and benefit. Accessing the cash value may also increase the chance that the policy will lapse and may result in a tax liability if the policy terminates before your death.

Variable universal life insurance can be structured so that the cash value that accumulates will eventually cover the premiums. However, additional out-of-pocket payments may be required if the policy’s dividend decreases or if investment returns underperform.

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Withdrawals of earnings are fully taxable at ordinary income tax rates. If you are under age 59½ when you make the withdrawal, you may be subject to surrender charges and assessed a 10% federal income tax penalty. Also, withdrawals will reduce the benefits and value of the contract. Life insurance is not FDIC insured. It is not insured by any federal government agency or bank or savings association. Depending on the performance of variable life and variable universal life insurance, the account value will fluctuate with changes in market conditions. At any time, the account value may be worth more or less than the original amount invested in the policy.

Please consider the investment objectives, risks, charges, and expenses before investing. Variable life and variable universal life insurance are sold by prospectus only. Information on fees and expenses can be found in the prospectus or obtained from your financial professional. Please read the prospectus carefully before you invest or send money.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.