- How much umbrella insurance do I need?
- Umbrella insurance calculator
- What is umbrella insurance?
- Do I need umbrella insurance?
- What should I consider when choosing an umbrella insurance policy?
- How much is an umbrella insurance policy?
- How to buy umbrella insurance
- How to save on umbrella insurance
- Related Article
- Is umbrella insurance worth it?
- Frequently asked questions: Umbrella insurance
How much umbrella insurance do I need?
You need enough umbrella insurance to protect your assets and future income if you face a major liability insuranceLiability insurance covers sums that an insured becomes legally obligated to pay because of bodily injuries or property damage, or financial losses caused to other people. claimAn insurance claim is a request you make to your insurance company for coverage after your car is damaged or you have an accident. You can file a claim online, by phone, or in writing.. Umbrella insurance policies usually start at $1 million in coverage, but insurance companies offer these policies in increments up to $5 million and sometimes even $100 million.
You may not think you have enough assets to require umbrella insurance, but it's easy to underestimate the need for liability coverage.
"The important thing to realize is that you don't need $1 million in assets to need that much coverage," says Ben Schaum, an underwriting process manager for Progressive Insurance. "The amount of coverage depends more on your personal comfort level and where you are in life."
The umbrella insurance calculator below can help you find out how much umbrella insurance you need to protect your assets.
Umbrella insurance calculator
Find out how much umbrella insurance you need in a few short steps
What is umbrella insurance?
Umbrella insurance is a type of personal liability insurance that provides additional protection beyond the standard limits of your auto and homeowners policies. It protects your assets in case of a lawsuit or claim against you. This coverage typically extends the liability limits on the policies you already have, such as auto or home insurance. Essentially, it protects you, ensuring that you are covered for significant claims exceeding your existing policies' limits.
Do I need umbrella insurance?
Whether you need umbrella coverage or not depends upon the answers to two main questions:
- What do you have to lose? Consider your assets, your future income and your children's future. If you had to pay a large judgment, how would it impact those things? What would you stand to lose now and what might you lose in the future?
- How much risk are you willing to take on? Everyone has a different level of risk tolerance. It's why some people like to play the stock market and others like to stash money away in a high-yield savings account. Your risk tolerance also plays a role in your insurance purchases.
The homeowners insurance liability limit, also known as Coverage E or personal liability limit, plays a crucial role in determining the need for umbrella insurance. Ensuring sufficient coverage in your homeowners insurance is essential before considering an umbrella policy.
Umbrella insurance works by providing extended coverage once your underlying liability limits (on your home and auto policies) are tapped out. So, before buying an umbrella policy, increase your coverage to the maximum limits on both policies. If that's still not enough coverage, it's time to look at an umbrella policy.
Our auto insurance coverage calculator can help with a recommendation for auto insurance coverage. But that's just a start. Many people underestimate what they have to lose and how much coverage they have.
What should I consider when choosing an umbrella insurance policy?
Before buying an umbrella policy, get to know what umbrella insurance covers.
Umbrella insurance covers these and other scenarios:
- Property damage
- Bodily injury
- Landlord liability
- Legal fees
- Libel and slander
- Malicious prosecution
- False arrest
Next, consider the pros and cons of umbrella insurance and ask yourself the following questions.
Let's look at each question with the example of a 45-year-old homeowner in suburban California we'll call Sarah. She’s divorced and has two kids, one of which has a driver's license. She carries liability limits of $500,000 on her home insurance policy and $300,000 on her auto insurance policy. Below, we'll outline how much umbrella insurance she needs.
What are your total assets?
Some experts recommend coverage equal to the value of your assets without regard for your debts. This could help you avoid selling your home to pay a judgment if your net worth is your home equity.
Our sample policyholder, Sarah, has the following assets:
- Personal property: Jewelry and other valuables worth $50,000
- Primary residence: Home valued at $500,000 with $350,000 in equity
- Vehicles: Two cars worth $25,000 and $35,000, respectively, which she owns outright
- Savings and investments: A retirement fund and savings totaling $200,000
Sarah's total assets are $660,000.
What is your net worth?
"Net worth" equals what you own minus what you owe.
So, your net worth is your assets (what you own) minus your liabilities (what you owe).
Basing your umbrella limit off of your net worth is the most common method.
The amount of your personal umbrella policy should exceed your net worth. You may not need an umbrella policy if your net worth is less than your current liability coverage.
Above, we determine that Sarah has assets of $660,000. However, she has debts, as well.
- Mortgage: Sarah owes $150,000 on her house
- Credit cards: Sarah owes $10,000 on a credit card
- Student loans: Sarah is still paying off a student loan and owes $20,000
Sarah's liabilities total $180,000. Her net worth is $660,000 - $180,000 = $480,000
Consider your future income
If someone sues you and gets a judgment that exceeds your liability coverage, your future earnings may also be on the line and could be garnished up to 25%.
Sarah makes $125,000 a year. Over the next five years, she'll make at least $625,000, likely more if she is given raises along the way.
When this is added to Sarah's current net worth, the total comes to $1,105,000. As she pays down her debt, this will increase further.
What would happen if you couldn't pay a judgment against you?
It's important to think about the ramifications for the future if you were unable to pay a large judgment against you.
If you've got two teens entering college, plan to retire soon, or are supporting aging relatives, a financial wipeout could be catastrophic and possibly permanent. That's another indication you might need to expand your liability insurance with an umbrella policy.
Sarah has teenagers for whom she plans to pay for college, and needs to consider the risk of losing that ability.
What is your risk of having to pay a judgment?
When deciding on umbrella coverage, you'll need to review your lifestyle, assets, and what you have to lose.
Chubb, a top-rated insurance company catering to the high-income market, offers a checklist for determining your need for umbrella insurance.
Consider the following points:
- Do you own a home? Even if it’s not a million-dollar property, it increases your liability.
- Do you have a swimming pool on your property? Hot tubs, ponds, or trampolines are also a liability risk.
- Do you drive a car regularly? Remember, it’s not about how much your car is worth but how much damage you could be responsible for if you’re at fault in an accident.
- Do you have young drivers in your household or drivers that have a car away at school?
- Do you employ a housekeeper, nanny, gardener, or other staff on the premises of your home?
- Do you have a dog? Remember that any dog can bite.
- Do you regularly entertain at your home?
- Do you serve on the board of a non-profit that won’t be able to provide you with liability insurance if you’re sued?
- Do you have a boat or other recreational vehicles?
- Do you participate in social media? Social media participation is something most people take for granted, but verdicts for libeling companies or individuals online can lead to millions in damages.
Our sample policyholder, Sarah, has the following risks:
- Driving risk: She commutes regularly and carpools her kids, increasing the risk of accidents. She also has one teen driver in the household, again increasing the risk of an accident.
- Home risk: She regularly hosts parties, including events for her favorite charity, which could lead to personal injury claims.
- Other risks: Her family loves outdoor activities, and they often have guests over to use their backyard pool.
Considering her assets, risks and what she stands to lose in a serious liability claim, Sarah needs at least $1.5 million in liability insurance. Her current policies offer $500,000 for personal liability and $300,000 for injuries in a car accident. Sarah needs at least $1 million of umbrella insurance to protect herself.
How much is an umbrella insurance policy?
How much umbrella insurance costs depends on a few factors, but, as a general rule, extended liability coverage is affordable. A $1 million policy costs about $240 a year (or $20 a month), according to Erie Insurance. This will vary by company and your personal risk factors. Umbrella insurance cost can also depend on the number of homes, cars, and drivers you have. For instance, having young drivers or a poor credit history can increase the cost. Despite these variations, many find the value of umbrella insurance to be worth the expense.
It's important to know that if you carry the bare minimum auto and home liability insurance, you can't add a million dollars of umbrella coverage. Insurers won't let you buy umbrella coverage until you have a substantial amount of liability coverage on your auto and homeowners policies.
A company will likely mandate minimum liability coverage of $300,000 (or even $500,000) for homeowners and $250,000 per person/$500,000 per accident for bodily injury for auto before they let you add a personal umbrella policy. That will increase your home and auto insurance rates.
How to buy umbrella insurance
You can buy umbrella insurance with almost any major insurance company. In some cases, you will need to have your home or auto insurance policy with the insurance company before they write you an umbrella policy.
To buy umbrella insurance coverage:
- Consider how much extra liability coverage you need (our calculator will help)
- Contact your current insurance company to find out if they offer umbrella insurance and request a quote
- Request quotes from other companies for comparison. Note that some companies will not sell you umbrella insurance unless the company also insures your home and vehicles; it may be worth getting new quotes for all three
- Compare quotes and coverage, choose your policy, and complete the application with a premium payment
How to save on umbrella insurance
Adding umbrella liability insurance will increase your insurance bill. However, there are ways to limit the expense.
- Raise your home and auto deductibles. Choosing a higher deductible means you save on premiums, which can go toward paying for your umbrella coverage.
- Compare insurance quotes. Compare the whole package when you get insurance quotes (you might find savings on your basic policies as well).
- Bundle your insurance. You can save hundreds of dollars if you bundle home and auto insurance, including your umbrella policy.
- Ask about discounts. In addition to bunded discounts, insurers often offer discounts for drivers over 50, safe drivers, and people with good credit.
Some insurers may give you a better rate on your basic liability policies if you add umbrella insurance. It pays to shop the entire package.
Is umbrella insurance worth it?
Whether umbrella insurance is worth it depends on your circumstances and risk factors. If you have significant assets, such as high net worth, or engage in activities that increase your liability risk, umbrella insurance may be a wise investment.
For instance, if you own a home, have a swimming pool, or frequently entertain guests, your risk of facing a lawsuit is higher. On the other hand, if you have minimal assets and few risk factors, you may not need umbrella insurance. It’s essential to assess your risk factors and consider your financial situation before deciding whether umbrella insurance is right for you.
Frequently asked questions: Umbrella insurance
What is the difference between umbrella and excess insurance?
Is umbrella the same as an excess insurance policy? Not quite. An umbrella policy provides additional coverage over the underlying liability limits. Typically, these policies can include coverage against events not included in the underlying policy. But excess insurance provides more coverage for specific events. With more limitations, excess liability insurance protects against specific situations.
What are the best umbrella insurance companies?
Most major home and auto insurance companies offer umbrella insurance coverage. We spend a lot of time researching the best auto insurance and home insurance companies so you don't have to.
Ask your current provider about umbrella options or shop around with some of the best insurance companies to see what they can offer. Companies like Travelers, Liberty Mutual, and Chubb are known for high umbrella coverage limits.
What is standalone umbrella insurance?
Standalone umbrella insurance refers to companies like Auto-Owners and RLI that will sell umbrella policies without requiring the underlying home or auto policies to be written with them. All umbrella insurance is a standalone policy in the sense that it's a separate policy and not an endorsementAn endorsement is a supplement or change to an insurance policy. It amends the original policy and can increase or decrease coverage, change names or update addresses. or rider.
What is drop-down coverage on an umbrella insurance policy?
Drop-down coverage indicates that an umbrella policy will step in to cover relevant expenses when the original liability policy reaches its maximum.
How much does a $5 million umbrella policy cost?
Based on a rate of $240 (from Erie insurance) for $1 million, you can expect to pay anywhere from $50 to $100 for each additional million, giving a range of $320-$640 for a $5 million umbrella policy.
Can I buy umbrella insurance separately?
Yes, umbrella insurance is always purchased separately. But you’ll need underlying homeowners and auto insurance with substantial coverage limits.
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