Who Needs Umbrella Insurance to Protect Their Assets?

Deciding if an umbrella insurance policy is right for you isn’t just about deciding if you do or don’t want to pay for one more layer of insurance coverage. Even if you feel like you’re already protected from any number of unlikely (or even unimaginable) scenarios, you probably don’t want to find out how wrong you can be. 

It’s been said that anyone who can be sued should have a personal umbrella policy in place to protect their assets, and if that’s the case, everyone should have one. So what is personal umbrella insurance and do you really need it? Let’s take a closer look. 

An umbrella insurance policy exists to protect your assets, including future wages, equity in your home, stock assets, your business, or any future income you may amass if you are sued for one of many covered perils and the judgment exceeds your maximum insurance payout.

Imagine your dog gets out of the yard and bites your neighbor. As a result of their injuries, your neighbor decides to sue you, and the judge awards them more money in the litigation process than your maximum liability coverage included in your renters or homeowners policy. 

This is just one example, but you can apply the circumstances to essentially any scenario where you’re sued as the result of some unexpected occurrence or accident. If the plaintiff(s) suing you are awarded more money in the litigation of the case than your maximum liability coverage (auto or home) allows, they can target any of your other financial assets. 

Personal umbrella insurance covers three main types of liability: 

It’s important to recognize that personal umbrella insurance is liability coverage, so it won’t extend the coverage of your own property loss, claims related to your business, or damage that may have been caused with deliberate or malicious intent.

You can’t predict the future, so it’s difficult to say with any certainty who does or doesn’t need an umbrella insurance policy. By some estimations, everyone should have some form of umbrella insurance because you could be sued at any given moment, and you can’t say for sure that the cost of that legal battle won’t exceed the coverage you already have in place. 

By another estimation, people who find themselves with an increased risk of liability almost certainly need personal umbrella insurance. If you keep staff for household maintenance, enjoy throwing large parties at your home, own large breed pets, or have some level of notoriety with the public, you may be at a higher risk of being sued. 

Ultimately, if the combined total of your assets, including your property, possessions, home equity, and investment accounts exceeds your highest level of liability protection, there’s no reason not to have a personal umbrella policy. 

Umbrella insurance is a supplemental form of coverage, so no hard and fast rule says you do or don’t need it. In reality, you might not realize how much you need it until it’s too late and you’re in a sticky situation.

If you’re looking for advice on whether or not to take out a personal umbrella policy, your insurance provider may not exactly be the best person to ask.

Instead, consider consulting with a CPA or another financial advisor who can assess your risk as well as your coverage and assets to help you make the most informed decision. 

At the end of the day, umbrella insurance can be relatively inexpensive. A $1 million policy might cost you between $200 and $350 a year. Given the low cost, deciding if you want to invest in an umbrella insurance policy may come down to a matter of being better safe than sorry, especially when you never really know what the future could hold.