Some will say that umbrella insurance becomes more important when you build wealth and have significant assets. And until you do this, you likely do not need to worry about getting the extra insurance. While it is true that umbrella insurance does become more important with the more “stuff” you have to protect, it doesn’t tell the whole picture.
You don't have to be wealthy to need an umbrella policy. Why? If you face a lawsuit where you’re found at fault and have a very large settlement the court will find a way for you to pay, even if you think you can’t afford it. If you have exhausted the base limits on your home or auto policy and don’t have umbrella insurance you could have your current and future assets at risk.
It’s important to understand that lawsuits consider all of your assets, not just your cash. Assets include investments you’ve made, your non-employer sponsored retirement funds, your house, your car, your electronics, jewelry, and anything else that can be liquidated into cash. Even if you don't have any assets or your assets don’t cover the judgement, your wages can be garnished in a lawsuit.
A typical umbrella insurance policy provides $1 million of liability coverage over and above the liability on your home and auto insurance policies. Some companies also offer higher liability limits and uninsured/underinsured coverage. With so much added protection, it is extremely unlikely your personal assets or future earnings would be at risk, even in a disaster scenario. So to give yourself added coverage and more peace of mind, it’s worthwhile to get umbrella insurance no matter your financial position.
This blog post is not offered, and should not be relied on, as insurance advice. You should consult an insurance agent for advice in specific situations.