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Article

Shelter From the Storm: What is Umbrella Coverage and How Much is Enough?

Life can bring surprise storms when you least expect them. Is homeowner’s and auto insurance enough to weather a bad storm, or is there something more? This article covers the purpose of umbrella coverage and how it can protect a household in a financial downpour.

June 3, 2025
Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

Life can present some serious storms, and when it comes to financial liability, standard homeowner's insurance might feel as inadequate as a raincoat during a hurricane. That’s where umbrella insurance policies offer an additional layer of protection, when life’s little showers turn into a financial downpour. Umbrella policies are designed to help safeguard a property owner’s income, assets, lifestyle, and legacy, if someone is injured on the property or by a member of the household.

Understanding this protection requires a closer examination of the potential storm clouds and the valuable assets that may be at risk.

Determine the Right Amount of Coverage

Take an inventory of potential risks around the property.

  • Teenage Drivers: Less experience behind the wheel increases the risk of accidents.
  • Backyard Hazards: Pools, trampolines, and even playful pets can lead to unforeseen injuries on the property.
  • Everyday Accidents: A simple slip on an icy walkway can result in significant injury and liability.
  • Social Gatherings: Hosting parties, especially with alcohol, may increase an owner’s responsibility for guest’s well-being.

How much coverage is really needed?

A widely accepted guideline is to correlate potential umbrella insurance coverage to the obvious assets, including:

  • Home Equity: The value of the home minus the mortgage.
  • Savings and Investments: Checking and savings accounts, money market funds, stocks, bonds, and mutual funds.
  • Vehicles and Other Property: Cars, boats, RVs, and valuable personal items.
  • Future Earnings: This is especially crucial for high-income earners.

Coverage Guidelines Based on Financial Profile

Consider net worth and potential risks when determining coverage.

  • $1 Million: A good baseline for many homeowners with moderate assets.
  • $2 Million to $3 Million: This may be prudent for those with growing net worth, teenage drivers, pools or trampolines, or for those who frequently entertain.
  • $5 Million or More: May be recommended for high-net-worth individuals, professionals with significant earning potential, or those with multiple properties.

A Proactive Approach

Keep in mind that umbrella policies typically require certain minimum limits on underlying home and auto insurance. Be sure to review those policies, as they can provide a significant foundation for an umbrella policy.

Be proactive, don't wait for the storm clouds to gather. A well-chosen umbrella policy may help weather an unexpected financial downpour. Let’s discuss your circumstances and tailor a solution that provides the clarity you deserve.

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