Who Needs an Umbrella?
Proper insurance is a cornerstone of good personal finance practice. The proper type and amount of insurance can literally mean the difference between wealth and poverty. But insurance isn’t something people like to think about (other than insurance salesmen, I suppose). Knowledge of the basics is pretty common:
- Life insurance (Get term - here’s why)
- Homeowners insurance (Mandatory if you have a mortgage but also essential if you rent)
- Disability insurance (You do have this, right?)
- Health insurance (Or use a Health Savings Account)
There’s one more kind of insurance that can be important. It’s called an umbrella policy. It’s called that because it’s a general-purpose kind of insurance. It provides coverage against claims over and above your other insurance and fills in gaps between them.
Who needs it?
You only need an umbrella policy if your assets are significant. What’s significant. Usually you’re talking over $500,000. If your assets are below that, your primary coverage (through auto and home) is probably adequate. It’s my understanding that you can’t be sued for more money than you have assets.
How much does it cost?
Not much. A typical $1,000,000 policy costs about $200 a year with a $1,000 deductible.
How do I get it?
A good insurance company won’t sell you insurance you don’t need. Umbrella policies are typically sold in increments of $1M. So they’re going to ask you right off the bat whether you have enough assets to make an umbrella policy worthwhile. You’ll likely also have to have maximum coverage through other insurance. Finally, you’ll probably only be able to buy an umbrella policy from the company that sells you your other policies.
insurance
June 25th, 2007 at 3:41 pm
Your last point is important. When we got umbrella insurance, our other premiums increased by a fair bit. Unfortunately I don’t remember the exact amount, but I believe it was more than the cost of the umbrella policy.
I.e. our umbrella policy may have cost us only $200/year, but the increased premiums on other policies was another $300 or so.
Of course that value will vary, depending on your existing coverage.
June 25th, 2007 at 10:51 pm
You wrote “It’s my understanding that you can’t be sued for more money than you have assets.” I am not sure I agree.
A young professional with a strong income potential can be sued for future earning. EVERYONE should have an umbrella policy. My $1,000,000 policy is only $110 per year. Where some people may feel the pinch is your umbrella policy may require that you carry higher limits on your other coverages like auto and home.
June 26th, 2007 at 8:35 pm
You can be sued for more than your assets. And if you lose, you declare bankruptcy and wipe it off your slate. Hence, the only point of somebody doing it would be just vindictiveness and the courts would cap the award to your assets just to avoid that kind of waste of time.
I have an umbrella myself — I don’t recall my agent ever asking about my assets so I don’t think it’s really a requirement. They do require you have max auto/renters/homeowners though. Actually turned out to be near zero extra cost since getting 3 policies from the same company gave me a multi-line discount that covered most of the difference.
June 2nd, 2008 at 12:54 pm
The majority of my assets are in retirement accounts (IRA’s, specifically). I used to have an umbrella policy, but was told that if I were sued, the money in my IRA could not be looked at to satisfy any judgment. Is this true? Where can I go to find additional info on this? Anyone got any ideas? Thanks.