Kiplinger tells us why many of us need an umbrella insurance policy and gives the following guidelines:
He recommends that everyone have at least a $1-million umbrella policy to provide liability coverage beyond the limits of their auto- and homeowners-insurance policies -- even if they have less than $1 million in assets. That’s because in the rare event you are sued, you could be forced to pay a legal judgment from your current assets and future earnings. The policy can also pay for defense costs, which can quickly add up even if you win your case. It’s an inexpensive way to protect your finances from devastating lawsuits.
Freedman recommends getting more than $1 million in umbrella coverage if you earn more than $100,000 per year or have more than $1 million in assets. “Our clients get liability-insurance limits that are at least as much as their net worth,” he says. Daniel Morris, a CPA in San Jose, recommends at least a $2-million umbrella policy for most people, or a policy for $3 million to $5 million if you have rental property.
The price varies by risk, but someone with one house and two cars would generally pay about $200 a year for the first $1 million in umbrella coverage and another $100 for the next $1 million, says Bill Howard, an independent insurance agent in Alexandria, Va.
Umbrella policies are inexpensive because they kick in only after you’ve exhausted your liability coverage under your auto or homeowners policy. Most insurers first require you to have $300,000 or $500,000 in liability coverage on your car and home. For example, if you have $500,000 in liability insurance on your auto policy and a $1-million umbrella policy, you’ll have a total of $1.5 million in liability coverage.
Some thoughts from me:
- This was key for me: "you could be forced to pay a legal judgment from your current assets and future earnings." Even if your assets are low, your future earnings are probably not (unless you're 70 or older.) As such, you need to protect them and umbrella insurance is a great way to do so.
- I've had umbrella insurance for quite some time now and I've increased it over the years. In fact I just talked to my agent last month and I will be bumping it up again when it's due later this month.
- As they say, it's pretty inexpensive for the coverage you get. Here's what I was quoted by my agent: -- $2 million in coverage - $228
-- $3 million in coverage - $304
-- $4 million in coverage - $365
-- $5 million in coverage - $410
For more on umbrella insurance, check out these posts:
- The Basics of Umbrella Insurance
- Why You Might Need Umbrella Insurance
- Umbrella Insurance Is Always the Right Answer
How about you? How many of you have umbrella insurance? And if you don't have it, why not?