An umbrella liability policy is a very good idea. An umbrella policy picks up where your homeowner’s or car insurance liability leaves off. If you have a half million dollars in auto liability and someone sues you for a million, your insurance company will pay out the $500,000 in coverage and not a penny more. Guess who has to come up with the rest? That’s right you do. I personally don’t have a half-million dollars lying around. Do you? If you can’t pay it, you’re out-of-luck. You’ll have to start selling all of your assets to pay the remaining balance.
However, if you have an umbrella policy in place, it will cover the balance. In our example, your $1 million umbrella policy will paying the remaining $500,000 and your assets are safe. An umbrella policy is very affordable and will provide you and your family another layer of protection beyond the basic liability. The cost of an umbrella policy is fairly inexpensive. You should be able to purchase a $1 million policy for around $200 a year. If you skip this one, it could cost you all the wealth and assets.
As your assets grow, you have a home with equity, your retirement accounts are growing, your investments are growing, you’re making good money, and have other quality assets. You definitely need an umbrella policy. Don’t pass it up.
Mitch Freedman, a CPA and personal financial specialist in Westlake Village, CA, recommends that you get 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 bottom line is that you need umbrella policy to protect your family and your assets. The amount depends on your assets. Add up your total assets and compare it to the amount of coverage offered under your home and auto policies limits. The excess liability that is not covered by home or auto policies, is supplemented by an umbrella liability policy.