Umbrella Insurance 101: Everything You Need to Know
Why Do I Need Umbrella Insurance?
Most people would be surprised if they did a close review of the coverage they have under their policies. Many would find their auto insurance limits inadequate to cover a helicopter or ambulance ride* for the person they’d injured. And that’s to say nothing of the ensuing medical bills or lost wages claims.
If you don’t have enough coverage for an accident, whether it’s in a car or at your home, you are putting your assets and future earnings at risk.
How Much Umbrella Insurance Do I Need?
A personal umbrella policy supplements your underlying insurance coverage such as your home and auto policies. An umbrella policy will also typically include coverage for additional recreational vehicles owned such as a RV, motorcycle, or boat. Two questions we commonly receive from clients are:
Do I need an umbrella policy?
If I do need one, how much coverage do I need?
Here is our simplified methodology to calculate how much umbrella insurance you need:
Add up all your assets to calculate your household’s net worth.
Identify your home liability limit and your per person auto insurance liability limit. Subtract the lower from your net worth.
Multiply the balance by three
A family with a net worth of $2.5MM and home insurance liability limit of $300,000 should consider an umbrella of at least $2.2MM. However, personal umbrella policies are only sold in increments of $1MM, so the decision would have to be made whether to purchase a $2MM or $3MM policy. There are additional factors such as the family’s protected assets that should be discussed to help identify the right decision.
Excess Uninsured Motorist Coverage
This coverage is often available by endorsement to an umbrella policy and can be utilized in several circumstances – it’s not limited to just you while you’re driving. An example that happened to a friend nearly a decade ago is a helpful illustration:
It’s around ten in the evening, and our friend is getting into her car that is parked on a residential street. Just as she begins to open her door, an uninsured** drunk driver comes down the street and hits her.
It was a tragic circumstance and fortunately she survived the ordeal! Further, she had this coverage that assisted with medical bills, physical therapy costs, and her lost income while she spent more than a year recovering.
Purchasing A Personal Umbrella Insurance Policy
Umbrella insurance companies require that you provide them with all relevant policy information for your underlying coverage such as home and auto insurance. This is necessary to make certain you’re insured with a good company and that you have the coverage limits they require. Most umbrella carriers will need at least $300,000 in liability protection on your home policy and $250,000 per person on your auto insurance.
We’ve written about the importance of combining home and auto insurance with the same carrier. We recommend that you combine your umbrella insurance with the same company as well – this will offer you the best pricing and typically the most complete coverage.
*According to Research 360, the average helicopter flight is $32,895
DISCLAIMER: This article is provided for general informational purposes only and should not be relied upon for legal advice. Old Harbor Insurance Services, LLC recommends you consult your risk manager, attorney, business advisor, or insurance representative for all questions or concerns.