[Jay]

The insurance agent says I should should carry enough insurance in umbrella policy to cover entire net worth less what is in retirement account.

Agree or disagree?

Umbrella insurance is designed to provide extra liability protection beyond the limits of other policies, like auto or home insurance. The idea is to cover large claims that could exceed the limits of standard insurance.

However, the question arises whether umbrella insurance should also cover an individual’s total net worth, including assets like investments, properties, and savings.

Some argue that umbrella insurance should cover net worth, as it would provide a more comprehensive safety net for individuals with substantial assets.

Others believe that umbrella insurance should focus on liability protection rather than covering wealth, as the purpose of the policy is to protect against legal and financial risks arising from accidents or lawsuits, not safeguarding one’s accumulated wealth.

What are your thoughts? Should umbrella insurance extend to cover an individual’s entire net worth, or should its scope remain limited to liability risks?

[Laura]

Do you have umbrella policies on top of OR instead of regular auto and home policies? Trying to understand…

[Frank]

Well, without any other information, I suppose that’s a reasonable guess.

If you really wanted to be scientific about it, you would be assessing the likelihood of being sued based on your lifestyle.

For example, do you have a pool where a child could drown?

Or a reckless driver who is likely to kill someone at high speeds? Net worth is actually just a starting point for assessing risks.

But the real value of umbrella is that the insurance company is going to defend the potential claim vigorously at no extra change to you.

[Cody]

Generally agree. I think of it like having an attorney on retainer for a very low cost (once underlying liability coverage is appropriate).

You can increase your deductibles to reduce the overall cost of P&C insurance.

[Charlotte]

Agree, but it’s relatively cheap so we generally go with a higher umbrella than we need.

[Jake]

When I shopped around the prices only started increasing more at over 3 million.

If you get some quotes from a few companies in the 1-3 million range you may see the same.

It’s not that expensive.

If you have assets or a good job it’s worth it.

[Mathilde]

Where did you all go to purchase this policy? Current carrier for auto or home policy?

Other specialized one? Thank you

[Michael]

Agree…sort of. 401ks are protected accounts from lawsuits at the Federal level. In many states IRAs and primary residences have similar protections.

Taxable brokerages, cash, and investment properties are generally at risk in lawsuits.

Umbrella policies are generally sold in large blocks ($500k or $1M) and is relatively low cost so more is generally better than less.

If you’re on the receiving end of a lawsuit, putting an insurance company and its stable of attorneys on the hook isn’t a bad plan.

[Joshua]

Disagree. Attorney here. It’s not likely but if you were in an accident and significantly hurt someone and they find out that you don’t have enough insurance yet you have a lucrative/well paying job, they might conclude it’s worth the trouble of garnishing your wages and potentially going after other assets etc.

I just think if you are in the accumulation stage and are doing well for yourself, get a 1 to 3 million dollar umbrella at the minimum.

[Chris]

Depends a lot on your likelihood of being sued. What’s your profession? Do you have teen drivers?

[Sandra]

If by retirement account they mean 401K, maybe. Those are less exposed to litigation than IRA, for example, in my understanding.

Some companies let you keep your 401K with them when you leave, others don’t, even if you want to do so.

I’m sure it’s much more complicated than that.

I would ask them to explain in detail why they say that and what do they mean by “retirement account”.

[Michelle]

We asked opinions on umbrella policy value not just from the insurance agent (although we do have very high trust in them) but our financial advisor and our family lawyer as well, just to make sure we got similar answers.

We did, so that led us to follow their suggestion

[Stephanie]

I’m not sure what’s recommended but I know what I feel comfortable with. I have double net worth in umbrella insurance.

For what it can protect you from it is dirt cheap

[Helen]

We recently had this discussion with our agent as well. He didn’t mention excluding our retirement accounts.

It’s relatively inexpensive insurance for peace of mind.

[John]

I’m an agent and really don’t understand why you’d minus out retirement account balances.

Makes more sense to me to cover at minimum net worth with an umbrella.

[Zane]

The real expense of an umbrella policy comes from having to max out your various liability policies (home/auto).

Once that is done the difference between a $1-5m umbrella policy is usually relatively inexpensive so I lean towards the high side.

[Ben]

Disagree. The coverage is too cheap to skimp out on it. You should have enough to cover 100% of your assets and even a years worth of income.

[Burkhart]

We have two young drivers and live in an area that’s becoming congested. I wouldn’t call it cheap, but we have a $2M umbrella.

The peace of mind is worth the premium.

Also have $500K liability on both auto and homeowners, because it isn’t much more expensive than the umbrella’s required amount.

[Author]

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