How Much Umbrella Insurance Do I Need?

Most people are familiar with homeowner's insurance because, if they have a home mortgage, their mortgage lender requires they carry enough homeowner's coverage to protect the lender's financial interests in the event that the home were to be destroyed.

They also know something about auto insurance because nearly every state requires drivers to carry a minimum amount of automobile liability coverage and some, including North Carolina, also require you to carry uninsured driver's insurance in case you're in a car accident that's caused by someone without the required insurance in force.

Umbrella Insurance

Umbrella insurance, however, is something you may not be familiar with because no one requires it and, since insurance agents make minimal commissions when writing an umbrella policy, it's generally not a sales priority. Umbrella insurance also must be taken out in conjunction with your homeowner's and auto insurance policies, and usually written by the same company that carries those two policies for you. Unfortunately, it's often not even brought up by an insurance agent and you'd actually have to ask about it to get the needed information regarding the basics of this type of coverage.

Umbrella insurance is protection against liability for which you are held responsible that goes beyond the amounts covered by your homeowner's and/or automobile insurance policies. It covers you against liability claims of property damage and bodily injury or death, taking up at the point where your homeowner's or auto insurance maximum coverage amounts have been surpassed. Umbrella insurance also protects you from the effects of being sued for slander, malicious prosecution, libel, false arrest or mental anguish.

How Much Protection Do You Need?

Even if a potential plaintiff has a legitimate liability case, it's doubtful that it will be brought to court if the defendant has few assets. Going after someone with limited assets doesn't make since with little to gain even if the case is won.

If you're wealthy, however, the likelihood of being sued increases exponentially since, with "deep pockets," you may be subjected to even frivolous lawsuits. Experts recommend that, when your assets total $300,000 or more, an umbrella policy of at least one million dollars makes sense, with two million being even more appropriate.

Statistics show that approximately 12% of typical homeowners carry umbrella insurance. For wealthy homeowners, that figure increases to 50%. For those worth $5 million or more, nearly 80% carry an umbrella policy.