Legacy Digest

How to choose the right amount of coverage for your personal umbrella policy

When life rains down an unexpected event, a personal umbrella policy can be your saving grace. This type of insurance goes beyond the limits of typical auto, homeowners, or watercraft personal liability policies, providing an extra layer of protection for your assets and future earnings. But with different coverage limits available, how do you determine the right amount for your personal umbrella policy? Let’s dive deep and find the answer.

What is Personal Umbrella Insurance?

Before moving forward, it’s crucial to understand what personal umbrella insurance is. Essentially, it’s additional liability insurance designed to help protect you from significant claims and lawsuits. It does so by covering expenses that exceed the limits of your primary policies, such as your auto or homeowners insurance.

Factors to Consider When Choosing Coverage:

1. Evaluate Your Risk: Certain factors can increase your likelihood of getting sued. Do you own a dog? Do you have a swimming pool or trampoline? Do you live on a lake? If so, these factors typically increase your risk, and you may want to consider a higher coverage amount.
2. Assess Your Assets: Take a thorough look at your current assets — your home, savings, investments, and even future income. These are what’s at risk in a lawsuit. Your umbrella coverage should at least match the total value of your assets.
3. Future Earnings: Remember, in a lawsuit, not only are your current assets at risk, but potential future earnings can also be targeted. If you have a high earning potential, you might want to factor that into your coverage decision.
4. Activities with Elevated Risks: If you frequently participate in activities that could increase the likelihood of someone getting hurt (like hosting large parties), you might want more extensive coverage.
5. Location, Location, Location: If you live in an area known for high settlement amounts or one with a litigious culture, higher coverage might be wise.
6. Current Coverage Limits: Review the liability limits on your current policies (e.g., auto, homeowners). Your umbrella policy should kick in after these primary policies are exhausted. Typically, insurers require you to have a certain amount of liability insurance on your primary policy before selling you an umbrella policy.
7. Cost of Incremental Coverage: Often, the price difference between lower and higher coverage amounts is minimal. Get quotes for various coverage levels to see if it makes financial sense to increase your protection.
8. Peace of Mind: At the end of the day, insurance is as much about peace of mind as it is about financial protection. If a higher coverage amount helps you sleep better at night, it might be worth the additional cost.

Common Coverage Amounts:

Personal umbrella policies typically start with a limit of $1 million and can go up to $5 million or more. For many people, a $1 million umbrella policy offers substantial protection, especially on top of a $1 million underlying policy. However, if you have significant assets or other specific risk factors, you might want to consider higher limits.

Do I Need A Personal Umbrella?

We think the answer is probably, “Yes.” While circumstances should dictate the amount of coverage chosen, we think everyone can benefit from purchasing a personal umbrella policy. The cost of coverage is usually very inexpensive compared to the additional coverage provided, and the number of lawsuits seems to constantly be on the rise. For most people, we just think having the additional protection makes sense.

Ultimately, choosing the right amount of coverage for your personal umbrella policy isn’t just about picking a number. It’s about evaluating your life, your risks, and your comfort level. Give us a call at 586.209.4106 to give us a chance to review your current coverages, and to discuss your circumstances to help figure out whether a personal umbrella makes sense for you. You should also review your choice every few years or after significant life changes. Buying a personal umbrella now can prevent future downpours from ruining your financial future.