How Big is Your Umbrella?

Many HumbleDollar readers have saved and invested regularly over their working years and were able to retire comfortably. Unfortunately, a lawsuit could threaten that financial security.

One possible scenario: If, heaven forbid, you are involved in a traffic accident resulting in severe bodily injury or loss of life, a legal judgement against you could destroy your nest egg.

The liability coverage on a home or auto policy may not offer enough protection. For this reason, we are encouraged to purchase an additional umbrella policy.

Umbrella policies are usually sold in increments of one million dollars of coverage. Each additional increment raises the premium. But how much coverage do you really need?

The only recommendation I’ve run across is to match umbrella coverage to your net worth. But that is unsatisfying. If, for example, your net worth is $50 million, I can’t imagine you need $50 million of coverage.

For those HD readers who have an umbrella policy, how much coverage do you have, and how did you arrive at that figure? Have you ever heard of a rule of thumb for determining what a proper level of coverage might be?

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