If you’ve recently become wealthy because of an inheritance, sale of something, new high-paying job, or other windfall; umbrella insurance is something that may be hugely valuable to you when it wasn’t really a concern before.
Imagine you’ve got a nice place with a pool and dirt bikes and tragedy strikes: a neighbor’s child is injured or dies playing on your property without permission. You could be sued and at fault for millions of dollars worth of damages. The same is true if you’re at fault in a horrible car accident, you (or your family) say something dumb on the internet and tick off the wrong person, or if one of your kids damages some property. The fact is, when you have a high net worth you become more of a target for liability lawsuits and have more to lose than you ever did before.
Enter Umbrella Insurance
Umbrella Insurance policies are liability policies that pick up where your other coverage (e.g. homeowners insurance or auto insurance) leaves off. It can cover bodily injury, reputation damages (like libel or defamation), property damages, and court costs. If your home owner’s policy covers up to $250,000 in liability then you want to be sure your umbrella policy starts there.
When you are newly wealthy some kinds of insurance become less valuable to you. Long-term disability, life insurance, and long-term care insurance may not be a concern once you’ve amassed enough wealth to self-insure and are confident that the cash flow needs of you and your family are taken care of. Umbrella insurance becomes much more important the wealthier you get. It’s generally inexpensive and can scale up to limit the disastrous financial ruin that can come with unforeseen and unexpected tragedies.
How much coverage should I get?
A good rule of thumb is to have umbrella coverage equal to the amount of taxable assets you own plus retirement accounts over 1 million dollars.
Let’s say you’ve got a home, lake house, cars, land, and taxable investments worth 2.5 million dollars. You also have 3 million dollars in IRAs and 401(k)s. You’d want to have at least 4.5 million dollars of umbrella coverage.
It’s worth it to increase liability coverage on your home and auto policies while you’re thinking about it.
How much is it?
According to the Insurance Information Institute: For about $150 to $300 per year you can buy a $1 million personal umbrella liability policy. The next million will cost about $75, and $50 for every million after that.
So it’s pretty inexpensive considering the peace of mind it offers.
Where do I get it?
Talk to your financial planner and get put in touch with an independent insurance agent that can shop for a good price. Your auto and homeowner’s agent probably offers this coverage, so you can talk to them as well if you trust them.
Don’t Ignore This
If you’re wealthy now and you weren’t before – you probably never worried about losing everything you had…because you didn’t have much. But now that you’re rich you get free coffee and you have risks you didn’t have before. At the top of your priorities list after becoming wealthy should be getting your insurance straightened out.