April 17, 2015
How Much Umbrella Insurance do I Need?
Determining how much umbrella insurance to purchase can be a tricky endeavor. There are countless articles and blog posts dedicated to why you need umbrella insurance but few about How Much Umbrella Insurance do you need? First off as with all insurance decisions, speak with a licensed insurance agent or broker in your state before making any financial or insurance related decisions. Next, you may want to discuss this matter with your licensed financial adviser.
When it rains you may need an Umbrella Policy
How Much Umbrella Insurance do I Need?
Umbrella Insurance is an extended and often broadened form of liability insurance that stacks on top of your current auto, home, and other personal lines insurances, so determining how much you need is crucial. Since the rules are extremely varied from State to State, make sure you speak with someone that is familiar with your state. We are a California Independent Insurance Broker, for the record, so my opinions are more specific to the great state of California.
There are multiple ways to calculate how much umbrella liability insurance you need, none is best. The simplest method is to asses your overall net worth and try and match that up as best as possible. Umbrella insurance policies are almost always written in One Million dollar amounts, so you will not be able to make a perfect match. However, if you have a calculated net worth of say $1.7 million us dollars, then a one million dollar umbrella policy stacked on top of underlying amounts of $500K for the Home and $500k/$500K for the Autos would give you a $1.5 million dollar coverage amount which may be a close approximation.
Another technique that is an off shoot-version of this to calculate a combination of your net worth with your future earnings with the idea that you future earnings could be subject a future court judgement in the unfortunate circumstance that you were found to have been at fault. This technique can be a bit more useful for younger clients since the bulk of their earnings have yet to be made. One must take care when utilizing this method to be realistic about future earnings though.
Got an Umbrella?
The last technique that I like to consider is to evaluate the risk factors. What is a risk factor? There are certain lifestyles, events, and personal items that people have and maintain that make you more likely to be sued and hence need an Umbrella Insurance Policy. A partial list of these things include (but are not limited to): Ownership of any dog, a home that contains a pool, fast sports type cars, ownership of a boat, a glitzy lifestyle, being a famous person, traveling either for business or pleasure internationally, owning rental dwellings, working on the board of a fortune 500 type company, a high profile career, non profit work (especially involving any money or hiring.) The more of these factors that you meet may indicate that you and your spouse might want a larger limit of personal umbrella protection.
One final technique note – if you have in your Rolodex a lawyer who specializes in wills and trusts you will want to reach out to them in regards to the appropriate amount of umbrella coverage to consider. You may already be set up with some form of asset protection.
What is not covered by Personal Umbrella Insurance:
Business activities are rarely if ever covered by personal lines umbrella insurance. Personal lines that are not listed and declared under the umbrella are almost always not covered. Illegal acts often are not covered. Your property is not covered as Personal Umbrellas only covers liability. Your entire coverage may be declared void if you knowingly misrepresent something in your insurance application. There are also dozens of minor coverages that may or may not be covered depending on how your personal umbrella policy is written, such as international coverages when the incident and suit take place abroad. This is not a complete list, please either speak with your agent or consult your insurance policy.
Also Consider:
Please also consider reading: The Case for the Umbrella
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