Think of umbrella insurance as a fail-safe for your savings and other assets sometimes called personal liability insurance. If you sue for damages that exceed the liability of your car insurance, homeowners insurance, boat insurance, or some other policy, an umbrella policy helps you pay what you owe.
Note that umbrella insurance is similar but not similar to additional liability insurance, which already gives you a higher limit on liability coverage. What is the difference? Most umbrella insurance also provides additional coverage that is not included in your base insurance policy, such as paying legal fees and compensation if you are accused of defamation (false statement) or defamation (false written statement).
How much umbrella insurance do I need?
It is a very common question from people that, how much umbrella insurance do I need? It is wise to have at least adequate liability insurance to cover your total assets. To calculate how much umbrella insurance coverage you need, a quick way is to add value to your assets (including the value of your assets, savings and investment accounts).
Then, look at the liability insurance you already have through your existing policies and buy enough umbrella insurance to make a difference. This calculator can help you determine your total value.
If you want to include potential income you can earn much more now than you do soon – for example, if you are a medical student.
When considering potential lawsuits, keep in mind that employer-sponsored retirement accounts such as 401(k)s are protected from most lawsuits under the Federal Employees Retirement Income Protection Act (ERISA) of 1974. IRAs are not without funds from an employer-sponsored account. However, IRA accounts and equity in your home are often at least partially protected by state law. Check your local laws before deciding how much umbrella insurance you need.
Insurers usually sell umbrella insurance in million-dollar increments. This means that the cheapest policy available provides $ 1 million coverage, the next cheapest policy provides $2 million coverage, and so-so you get a fair amount no matter what you like.
How to buy umbrella Insurance
Almost all major insurers offer umbrella insurance, but most require that you carry your auto, homeowner, condo, or tenant insurance with them. Before buying an umbrella policy you usually need to buy a minimum amount of liability insurance in that policy; the minimum varies by company.
For example, to add umbrella coverage to your car insurance, your policy may have $300,000 physical injury liability coverage and $100,000 property damage liability. To add umbrella coverage to a homeowner’s policy, you often need $300,000 liability insurance.
RLI and Auto-Owners Insurance are two companies that offer stand-alone umbrella insurance policies, which means you can carry your auto or homeowners coverage with someone else. An independent agent or broker can help you find alternatives from this company or others.
Another big factor when shopping is the maximum limit given by the company. Most umbrella policies stop at $5 million, but some are more. Travelers Insurance and Sefeco Insurance, for example, offer umbrella insurance up to $10 million, while the Chubb’s umbrella limit goes up to $100 million.
Remember that the best umbrella insurance for you will cover your hobbies and other activities. For example, if your idea of a fun vacation is to rent a jet ski and hit the water, be aware that some insurers may exclude these vessels from umbrella coverage, others will cover fares like Progressive Insurance.