How much umbrella insurance do you need?

An umbrella insurance policy becomes essential when the maximum liability limits on your homeowners and/or motor vehicle policies don’t offer enough coverage to protect your assets against a liability claim adequately. Calculate your assets to approximate how much coverage you need and then contact your agent or insurer to discuss the appropriate coverage limit.

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How to figure out the right amount of umbrella coverage

A financial advisor or your bank or credit union can assist with calculating all of your assets, such as:

  • Checking accounts
  • Savings accounts, including money market and bonds
  • Stocks, mutual funds, and certificates of deposits
  • 401(k) and IRAs (Individual retirement accounts)
  • Equity in your home(s) (the fair market value of your home – your mortgage balance and any second mortgage or home equity line of credit = equity)
  • Equity in your vehicle(s), including cars, motorcycles, RVs, and boats
  • Jewelry, art, and collectibles
  • Clothing, furniture and electronics
  • Cash-value life insurance policy

Once you’ve determined your number, see if it exceeds your auto policy’s bodily injury and property damage liability coverage limit or the personal liability coverage limit on your homeowners policy. If so, an umbrella insurance policy can provide additional liability coverage at a reasonable cost. Without the added protection of an umbrella policy, any amount that you’re liable for will come out of your own pocket once you’ve reached the liability limit of your motor vehicle and homeowners policies.

Example:Your assets total $700,000. The combined single limit for liability on your auto policy is $500,000, and your homeowners policy’s personal liability coverage limit is also $500,000. You need an umbrella insurance policy with at least a $200,000 coverage limit to fully safeguard your assets in case you’re liable for an amount above the limits of your auto or homeowners policy.

If you currently have umbrella insurance, it’s a good practice to review your policy’s coverage limit annually to make certain your assets are protected against a liability claim. Understand that damage to your home, belongings, and motor vehicles is covered under your homeowners insurance and/or auto insurance, and not by an umbrella policy.

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