Beyond basic insurance coverages like health, auto, and homeowners, many insurance “solutions” are just products to be sold. One exception is umbrella insurance.
Excess liability, or umbrella, insurance is a type of policy designed to add coverage on top of other insurance coverages, such as a homeowner’s policy. This excess liability protection can help high net worth investors avoid financial ruin by shielding personal assets from large liability claims.
But umbrella insurance isn’t just for the wealthy.
Others who might consider an umbrella policy:
- Individuals with a net worth that exceeds existing liability coverage provided from auto or homeowner’s insurance – usually $300,000 to $500,000 per accident
- Those who entertain often at home, spend a lot of time on the road, or serve on a nonprofit board
- Pool, boat, or dog owners
What type of coverage does an umbrella policy provide?
An umbrella policy provides coverage for negligence associated with third-party property damage, third-party bodily injury, various personal liabilities, and certain types of lawsuits.
In the event you are sued, slander, libel, defamation of character, and lawyers’ fees are generally covered. Malpractice, worker’s compensation claims, intentional acts of wrongdoing, and business claims are not covered.
How much does an umbrella policy cost?
Kevin and Tina own one home, two cars, and have two drivers in their family. They can expect to pay about $300 per year for their first $1 million in coverage.
Additional coverage is less expensive. If Kevin and Tina want an additional $4 million in coverage, it’s only $350 to $400 more per year on top of the $300 annual premium for the first $1 million.
Their actual cost will, of course, depend on factors such as their insurer, where they live, their job, hobbies, and driving records.
How much coverage do I need?
A good rule of thumb is to match umbrella coverage to net worth, with a few exceptions:
- People with a net worth in excess of $20 million likely do not need to be insured up to their full net worth. A lesser amount, say $10 million, may be sufficient. For most people, the likelihood of needing coverage beyond $10 million is remote and the cost is higher.
- Those in a high growth stages of their careers might consider obtaining a policy up to 150% of their net worth to account for growth, as a person’s future income stream from employment can be at risk in a legal judgment.
I serve on a nonprofit board. Does my existing umbrella policy provide the coverage I need?
A personal umbrella policy may or may not cover service on a nonprofit board.
Terms and conditions vary by carrier, so it’s best to work directly with your agent to assess the scope of coverage as it relates to allegations of financial mismanagement, personal injury, third-party property damage, and third-party bodily injury.
What is Vista’s take?
Umbrella insurance is one of the most cost-effective risk mitigation tools available. For the price of a nice meal and good seats at a Blazers game, you can properly protect your existing assets and future earnings.