FAQs to Help You Decide Whether Umbrella Insurance Is Right for You and What Amount to Consider
As your wealth grows over time, it’s important to take steps to protect your assets from unexpected circumstances that may result in lawsuits and other risks. For many high-net-worth (HNW) individuals, it makes sense to implement umbrella insurance for added protection. Here, we offer answers to commonly asked questions to help you decide whether umbrella insurance is right for you.
What is umbrella insurance?
Umbrella insurance is a type of policy that provides additional liability protection beyond the coverage of primary policies, such as homeowners, renters and auto insurance. Umbrella insurance is typically intended to supplement existing policies, kicking in when a liability exceeds the coverage of the primary insurance. Umbrella coverage can be used for both personal and business policies.
For example, if you get into a car accident and are deemed responsible for damages or injuries, an umbrella policy can help pay for liabilities that exceed your auto insurance coverage amount.
What does umbrella insurance cover?
Umbrella insurance typically provides excess coverage for the following types of liabilities:
- Property damage – Damage to someone else’s property that exceeds your homeowners or auto insurance coverage.
- Personal liability – Homeowners, rental and auto insurance policies don’t always cover expenses related to personal injuries that occur on your property or are caused by you or a family member in an automobile or other type of accident. It’s important to note, however, that umbrella insurance doesn’t cover expenses related to injuries that are deemed intentional.
- Landlord liability – If you own rental properties, umbrella insurance can expand your liability insurance to protect you from claims made by tenants or tenants’ visitors. However, we always recommend a tenant obtain a renters policy with liability coverage.
- Libel, slander and defamation – HNW individuals may be more likely to be involved in lawsuits related to libel, slander and defamation. Umbrella insurance can help cover legal expenses and settlement/judgment costs.
How much umbrella insurance coverage do HNW individuals need?
Like most financial planning considerations, there’s not a single coverage amount or formula that makes sense for everyone. As you’re evaluating your options, keep in mind the following considerations.
The specific risks you face
For example, you may face a higher risk of liability if you:
- Own a business
- Have teenage drivers
- Have a dog
- Own investment property
- Coach youth sports
- Own a boat or aircraft
- Serve on a nonprofit board
- Are a public figure
The total value of assets you wish to protect
As a general rule of thumb, the more assets you have to protect, the more it makes sense to have umbrella insurance coverage in place.
The cost of a policy
The cost of umbrella insurance varies based on factors such as the value of your assets, your risk profile and the insurance company you choose to work with. According to one source, the annual cost of a $5 million policy was between $375 to $525 in 2023,[1] making this type of coverage relatively affordable compared to other types of insurance and the potential liability you may face without coverage. The cost of umbrella coverage is regional and will vary depending on your state of residence and the situs of your cars and property.
What isn’t covered by umbrella insurance?
Personal umbrella insurance typically doesn’t cover the following:
- Injuries to yourself or your family members
- Damage to your own home, property or car
- Damages that result from intentional acts
- Lawsuits and other expenses that result from criminal behavior
- Injuries caused by certain types of dog breeds, such as pit bulls, rottweilers and Doberman pinschers
- Injuries cause by dogs that have a history of aggression (regardless of breed)
