What is Umbrella Coverage?

If you’re sued for damages that exceed your insurance liability limits, umbrella coverage will help pay for what you owe.

The United States loves lawsuits, and you can become a target for this as you net worth grows. While auto insurance and homeowners insurance can help protect you from many accidents, something could occur outside from what they cover.

For example, you get into an auto accident and you are hit with a $1 million claim. If you insurance only covers $200,000, you will be personally liable for the remaining $800,000. If you don’t have that amount of cash on hand, your assets could be seized.

That’s where umbrella coverage can help – think of it as a fail-safe for your savings and other assets. Umbrella policies will protect you from damages that exceed your auto and property insurance limits. In addition, umbrella insurance provides coverage that’s not included in base insurance policies.

Who Needs Umbrella Insurance

Although umbrella policies are not required, it is commonly purchased by people who have a lot to lose. The more assets you have, the more people will target you for lawsuits. In general, we recommend umbrella coverage for anybody with over $300,000 in savings.

We also recommend umbrella coverage if you own riskier assets or engage in risky activities.

Risky Activities for Umbrella Coverage

• Traveling outside of the United States
• Playing sports where you could injure others
• Being a landlord
• Volunteering
• Serving on a non-profit
• Posting reviews of products and businesses
• Coaching sports

Risky Assets for Umbrella Coverage

• Property – even burglars have sued homeowners for injuries
• Pets that could injure others, such as a dog
• Assets that could cause injuries, such as pools and trampolines

How to Buy Umbrella Coverage

Insurers typically sell policies in increments of a million dollars. Therefore, the lowest insurance policy you can have is $1 million, and the next lowest would be $2 million.

Companies will only sell you umbrella policies if you already have auto and property insurance or renters insurance. Insurers may also require you to increase your coverage amounts for home and auto insurance before adding umbrella coverage.

Once you meet the minimum requirements, you will be able to add a umbrella policy as well.

How Much Coverage Do You Need?

We recommend buying enough insurance to cover your net worth. This way, your nest eggs are secure if anybody targets you. Additionally, you may want to increase your coverage depending on your current and future income. For example, if you’re about to graduate law school from a top 10 university, you may want a $1 million policy even if you currently have few assets.

Where to Buy Umbrella Coverage

While almost all insurance companies provide umbrella coverage, they typically require you to have home and auto insurance policies with them as well.

Another important consideration is the maximum limit insurers offer. Most policies have a $5 million ceiling, while others offer higher limits.

Make sure you also clarify what will be covered based on your activities and hobbies. If you enjoy boating, ensure that your policy will cover watercraft accidents.

How Much is Umbrella Coverage?

An umbrella policy should costs between $100 – $300 per year for $1 million in coverage. With such a high limit, umbrella policies offer great value for the cost. In a sue happy country like the United States, umbrella coverage is a great way to give peace of mind as you grow your net worth and income.