I've Reached a $1 Million Net Worth – Should I Get Umbrella Coverage?
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With a question about umbrella coverage, your net worth doesn’t much apply. The question is more about what you need in order to protect yourself, your assets and your family. That has more to do with your exposure and risk of loss than with how much you have to lose. As to whether someone would need umbrella insurance in this scenario, the answer is truly a “maybe.” It depends on your current insurance coverage, the costs of extra coverage and the specific risks you’re concerned about.
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Umbrella insurance is a secondary policy that kicks in after your primary insurance policy is exhausted. It covers any losses or payouts beyond the coverage of your primary insurance.
For example, say that you have an auto insurance policy that covers up to $150,000 in liability and damages. You are considered at-fault in an auto accident with a driver who suffers $95,000 worth of damage to their car and $155,000 worth of personal injuries and lost wages.
Your insurance policy could pay for the first $150,000 of this claim. Then, an umbrella insurance policy could pay that remaining $100,000 for which you would otherwise be personally liable.
The main reason to buy umbrella insurance is third-party liability. By and large, you can know in advance the value of your own property and assets, whether personal or real estate. Since this is knowable, you can buy insurance to cover most cases of personal loss.
Liability is another matter. It’s impossible to predict with any certainty the value of a third party’s assets or injuries. You might be in a car accident someday, or accidentally injure a guest at a party. Since accidents are impossible to predict, so are the costs and harms associated with them. This is where umbrella insurance comes in, as it covers you in case of unpredictable liability that exceeds your policy’s coverage.
Most consumers who get umbrella insurance will use it to supplement either auto or homeowner’s policies. Typically you must have an existing primary insurance policy, as this will not act as your main insurance. For homeowners, this can supplement coverage that you get based on your personal needs and mortgage requirements. For drivers, this can supplement coverage that you have based on your personal needs and your state minimum coverage laws. A financial advisor can help you review and coordinate your current coverage.
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