Do I Have a Big Enough Umbrella Insurance Policy? (2024)

FAQs

Do I Have a Big Enough Umbrella Insurance Policy? ›

As a rule of thumb, your umbrella coverage should at least be equal to your net worth. However, it's always wise to have a bit more coverage than your net worth to ensure you're fully protected against any lawsuits or liability claims.

Your umbrella insurance policy limits should at least cover the amount of your assets left exposed once your underlying auto or home policy liability limits are exhausted.

Umbrella policies typically start at $1 million in liability coverage. According to an ACE Private Risk Services report noted by Forbes, the average cost a $1 million personal umbrella policy is $383 per year for an individual with one home, two cars, and two drivers.

Key Takeaways. Umbrella insurance is the defensive part of your wealth-building plan. Anyone with a net worth of $500,000 or more should have umbrella insurance. Your umbrella policy limit should be equal to or greater than your net worth.

A $5 million umbrella policy costs around $375 to $525 per year, on average. Every policyholder's umbrella insurance premium will vary based on their personal risk factors, so individuals who own more cars or properties will be more expensive to insure, as will people who are particularly likely to be sued.

To decide how much umbrella insurance coverage you need, add up the value of your property, savings and investment accounts. Then, take a look at the liability insurance you already have through your existing policies and buy enough umbrella insurance to make up the difference.

Why then do so few of us actually have excess liability coverage? Oftentimes, customers don't know exactly what benefits the umbrella policy provides. In fact, only about 20% of homeowners carry an umbrella policy ¹. Many that do are sold a $1 million policy though their assets and earnings greatly exceed that number.

Doesn't Cover All Situations

While umbrella insurance provides broad coverage, it doesn't cover everything. For example, it won't cover your own injuries, damage to your own property or business-related liabilities unless you have specific policies for those situations.

State Farm's umbrella policies are a good choice for customers with a high net worth who want extra coverage for property damage, injuries, and possible lawsuits that could result from various types of incidents.

Standard homeowners and auto policies typically won't offer more than $500,000 in liability coverage, which means you may need an umbrella insurance policy to fully protect your assets if your net worth exceeds $500,000.

Why is my umbrella policy so expensive? ›

The cost of an umbrella liability policy depends on how much coverage you purchase, the state where you live (insurance rates vary by state) and the risk that insuring you presents to the insurance company. The more homes or cars you own, and the more household members your policy must cover, the more it will cost.

If your homeowners insurance has a liability limit of $300,000, you may add an umbrella policy with an additional $1 million of coverage. That would give you a total of $1.3 million dollars of protection should someone be injured at your home.

The amount of umbrella insurance you need depends on your assets, potential liabilities, and risk tolerance. As a general rule, it's recommended to have umbrella insurance coverage equal to your net worth. For example, if your net worth is $1 million, you should have at least $1 million in umbrella insurance coverage.

As mentioned above, a common thumb to follow is to get a policy equal to your net worth. However, it can be a good idea to purchase a policy with a larger limit if you expect your net worth or income to increase within the next few years.

Even a simple trip to the grocery store can result in a serious accident that leaves you responsible for major financial damages. Umbrella insurance through AAA can help protect you with affordable coverage that goes far beyond the liability limits of your typical auto and home insurance policies.

On average, umbrella insurance premiums cost between $200 to $300 per year. When the unexpected happens, your insurance policies are meant to act as a safety net to keep your wallet from feeling the brunt of life's mishaps. Unfortunately, insurance policies do have their limits.

The general rule is to choose an umbrella five feet larger than the area you want to shade. Umbrellas come in several shapes and sizes, including octagon, square, rectangle, and round, with the 9′ option being the most common.

Standard homeowners and auto policies typically won't offer more than $500,000 in liability coverage, which means you may need an umbrella insurance policy to fully protect your assets if your net worth exceeds $500,000.