How Big Is Your Umbrella, Follow-Up

I recently posted a request for comment about the appropriate amount of umbrella insurance one should have. I was hoping to learn of some formula or rule-of-thumb stating that "if your net worth is $X, you should carry $Y of umbrella coverage." As far as I can tell, there is no such formula or rule.

Many thanks to those who responded.

Mark Eckman wrote that most insurance companies offer a maximum umbrella of $5 million.

Patrick Brennan’s insurance representative regarded $500,000 of liability coverage on his auto policy and a $1 million umbrella as sufficient for his needs.

John Yeigh indicated that the most common legal settlements are in the $1-2 million dollar range. He personally has $3 million of umbrella coverage.

Rob Jennings and David Lancaster both cover their net worth. Edmund Marsh has coverage a step above his net worth.

Adam Grossman, in his post Grab an Umbrella, dated May 2, 2021, doesn’t explicitly call for matching umbrella coverage to your net worth. Instead, he asks how large a legal judgement against you might be. He cites one study reporting that most settlements fall in the $1-5 million dollar range. He therefore recommends that your umbrella coverage falls in that range as well.

The website www.ramseysolutions.com (affiliated with radio personality Dave Ramsey) recommends carrying umbrella insurance if your net worth exceeds $500,000. Beyond that, your umbrella policy should cover your net worth according to the site.

Ultimately, the extent to which your lifestyle exposes you to potential lawsuits (e.g., you have a pool, you coach youth sports, etc.) will dictate what an appropriate level of umbrella coverage is for your needs.

My conclusion: If your net worth falls within the $1-5 million range cited by Adam, match your coverage to your net worth. Beyond that, talk to your financial advisor or insurance agent.

The post How Big Is Your Umbrella, Follow-Up appeared first on HumbleDollar.