Key Takeaways
- The Gap: Auto/Home policies have limits (usually $300k-$500k). If you are sued for more, your assets are at risk.
- The Solution: Umbrella insurance sits "on top" of your other policies to provide $1M+ in liability coverage.
- The Cost: Surprisingly cheap ($200-$400/year for $1M coverage).
Introduction
We spend lifetime building wealth, but one bad day can wipe it out.
Imagine you cause a massive car accident. The other driver is a surgeon who can no longer work. The judgment is $2.5 million.
Your auto insurance pays its max: $500,000.
Who pays the remaining $2 million? You do. They garnish your wages and seize your assets.
Deep Dive: The Cheap Safety Net
How It Works
Umbrella Insurance is "excess liability" coverage. It kicks in only after your primary insurance (Auto or Homeowners) is exhausted.
Because it is a "catastrophic" policy, claims are rare. Therefore, premiums are low.
Who Needs It?
You effectively need it if:
- You have assets to protect: If your net worth > your liability limits, you are exposed.
- You have high risk factors:
- Teenage drivers.
- Swimming pool or trampoline.
- Rental properties.
- You host parties often.
The Sweet Spot
For most people, a $1 Million or $2 Million policy is the sweet spot. It provides massive peace of mind for the cost of a few dinners out per year.
Summary
Defense wins championships. You cannot build wealth if you leave the back door open to lawsuits. Call your broker.
