How much umbrella insurance do I need?

How much umbrella insurance should I have?

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.

Umbrella insurance coverage needs depend on your net worth, future income and exposure, not only the value of your current assets. You may need $1 million in liability coverage even if you have only $400,000 in assets right now, since a judgment can go against your future income. Use the calculator below to find out how much coverage you need.

"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.

Umbrella insurance calculator

Find out how much umbrella insurance you need in a few short steps

1Assets

2Debts

3Coverage

4Risk Exposure

5Results

What are your assets?

Real estate value

Two hundred fifty thousand dollars

Personal propertyMay include vehicles, boats, collectibles, jewelry, art, and household goods

One hundred eighty seven thousand five hundred dollars

Investments accounts

One hundred twenty thousand dollars

Bank accounts

Forty two thousand five hundred dollars

TOTAL VALUE OF ASSETS:

$600,000

All information provided is strictly confidential. No contact information is required unless you request a quote.

What is umbrella insurance?

Umbrella insurance is a personal liability policy that pays claims exceeding the limits of your existing auto and homeowners policies. Policies start at $1 million in coverage and extend up to $5 million or more. It covers bodily injury, property damage, legal fees, libel and slander, and other liability scenarios not fully covered by your underlying policies.

Do I need umbrella insurance?

You need umbrella insurance if your net worth exceeds your current liability coverage limits on your home and auto policies. Two questions determine your need: what assets you have to lose and how much liability risk you carry.

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 a few 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 whom 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.

Because umbrella insurance is generally affordable, it's a good idea to overestimate. We would recommend that Sarah buy a $2 million umbrella insurance policy.

How much is an umbrella insurance policy?

A $1 million policy costs about $240 a year (or $20 a month), according to Erie Insurance, while Mercury Insurance reports rates of between $300 and $600 a year. Cost varies by insurer and factors, including the number of homes, cars, and drivers you have. For instance, having young drivers or a poor credit history can increase the cost.

How to buy umbrella insurance

Before buying umbrella insurance, you will need to increase the liability limits on your underlying policies (homeowners, auto, and any other policies to be covered by the umbrella policy) to the highest available limits. Those limits are typically:

Homeowners insurance: $500,000
Auto insurance: $250,000 per person, $500,000 per accident for bodily injury and $250,000 for property damage
Boat insurance: $100,000 for smaller boats, $300,000 for larger boats

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 bundled 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.

What does umbrella insurance cover?How does umbrella insurance work? What are the different types of car insurance?

Is umbrella insurance worth it?

Umbrella insurance is worth it if your net worth exceeds your current liability coverage limits, or if your lifestyle includes activities that increase lawsuit risk, such as owning a pool, having teen drivers or frequently hosting guests. At about $240 a year for $1 million in coverage, the cost is low relative to the asset protection it provides.

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.

FAQ: Umbrella insurance

What is the difference between umbrella and excess insurance?

Umbrella insurance and excess liability insurance are not the same. An umbrella policy extends your coverage limit and can also cover events not included in your underlying auto or homeowners policies. Excess liability insurance only increases the coverage limit for events your underlying policy already covers, without adding new coverage types.

What are the best umbrella insurance companies?

Most major home and auto insurers offer umbrella policies. Travelers, Liberty Mutual and Chubb are among the companies recognized for high umbrella coverage limits. Start by requesting a quote from your current home or auto insurer, then compare at least two additional quotes, as some insurers require you to bundle umbrella with your home and auto policies.

What is standalone umbrella insurance?

Standalone umbrella insurance is an umbrella policy sold without requiring the underlying home or auto policies to be written with the same company. Companies like Auto-Owners and RLI offer this option. This differs from most major insurers, which require you to have underlying policies with that carrierAn insurance carrier is the company that provides your car insurance policy and pays claims. before you can buy umbrella insurance.

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?

A $5 million umbrella insurance policy costs between $1,000 and $1,800 a year, according to Mercury Insurance. Rates vary by carrier and risk factors.

Can I buy umbrella insurance separately?

Yes, umbrella insurance is purchased as a separate policy from your home and auto insurance, but most insurers require you to buy your home and auto insurance from them before they will sell you umbrella insurance. Some carriers, such as Auto-Owners and RLI, sell umbrella insurance without this requirement.

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