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How An Umbrella Insurance Policy Works and What It Covers


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November 06, 2022

What is an umbrella insurance policy?

Umbrella insurance is a type of personal liability insurance that can be a real lifesaver—or rather, life savings-saver—if you ever find yourself liable for a claim that's more than what your regular liability insurance will cover. Essentially, it means that if you get sued for a large sum, your umbrella insurance will pick up where your homeowner's, auto, or other personal property insurance leaves off.

You may think your current coverage is more than enough, but with the costs of medical expenses, extended lawsuits, and other legal fees being what they are, you may be surprised how quickly things can add up. By investing in an umbrella policy, you will gain peace of mind knowing your current assets—as well as any future earnings are fully protected.

Who needs an umbrella insurance policy?

We currently live in a lawsuit happy world and the reality is, since accidents that result in high costs can happen to anybody, obtaining an umbrella policy is recommended for almost everybody.

The good news is, since umbrella insurance typically extends to cover every member of the household, you only need one policy to protect your whole family. Even if your spouse or children don't have auto or property insurance in their own names, they'll stay "dry" under your big, family-sized umbrella.

10 Common reasons for having an umbrella policy

  1. You have inexperienced drivers in your household
  2. You have a significant amount of net worth
  3. You want to protect against potential loss of income
  4. You own property (especially investment property)
  5. You own a business
  6. You own pets (specifically large dogs)
  7. You coach youth sports
  8. You have children (especially teenagers)
  9. You participate in activities that could easily injure others
  10. You own items that could lead to injury lawsuits

How Much Umbrella Insurance Do I Need?

When selecting the right amount of coverage, there are things to consider.

  • Value of your assets: An umbrella policy should cover at least your net worth—this is generally what you stand to lose in a lawsuit.
  • Potential future income loss: Your future income could also be at risk in a big lawsuit. Even if you have a limited income now, consider your potential future income. For instance, if you're a medical student, you should consider your future earning potential.

A long legal proceeding is stressful and can potentially ruin a reputation, whether or not the lawsuit was baseless. Purchasing an umbrella policy won't ease the stress, but it can save everything you've worked so hard to build.

How Much Does Umbrella Insurance Cost?

According to the insurance information institute, a $1 million umbrella policy typically costs $150 to $300 annually. However, the cost of insurance varies by location, along with factors such as your home's age and construction, safety and security features and your age and claims history.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!


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About the author

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Matt Goldstein

Managing Director, Private CFO®

Matt grew up just outside Washington DC in Silver Spring MD. He attended Florida State University and completed The Wharton School of Business executive leadership program. Outside of work Matt is a family man and loves spending time with his wife Michele and his two daughters, Mackenzie a freshman at Emory University, and Lexi a Freshman in high school and his two dogs. Matt is also an avid ultra-endurance athlete and loves training for his next big race. He has completed 17 marathons and qualified and finished the Boston Marathon twice, 3 Ironman triathlons, and multiple Ultra trail marathons including a 100K. In August he will be attempting the Leadville 100 which is one of the toughest ultras in the world.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. Investor Disclosures: https://bit.ly/KF-Disclosures

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Background and qualification information is available at FINRA's BrokerCheck website.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. https://Bit.ly/KF-Disclosures

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