How Much Umbrella Insurance Coverage Do You Need?

In this episode of Ready for Retirement, James discusses umbrella insurance coverage and how much you need.

Questions Answered:
How should I think about an Umbrella Insurance Policy (how much)?
Understanding how much defense (risk management) is needed
How can your overall retirement strategy be improved?

Timestamps:
00:00 - Introduction
2:30 - Umbrella Insurance 101
3:25 - Home/Auto Policies
5:04 - Insurance Policies Examples
8:50 - Net Worth Value
10:03 - State Exemptions
13:58 - How Much?!
16:33 - Two Examples
19:05 - Working With Us

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[ivanvarykino]

For the last 15 yrs probably I've had umbrella coverage. When you have a lot of remodeling done on homes with contractors or service people, neighbor kids playing with your kids in your yard, this is an almost essential "defensive" tool to protect assets. We also owned a motorhome for many years and my insurer required an umbrella policy at least at that time. Made sense as it also applied the coverage on the home to the RV which I never needed. But was comforted to have.
I still consider it worth the minimal $200-$300 annual premium when bundled with home and auto.

[roberttrimble]

Gap exposed in my planning! Glad I followed this episode.

[Jim-mzcf]

Very informative video. I might be overinsured when it comes to umbrella coverage. What I don't understand is why total assets matter so much. If you have say $1M in total assets and $750k is protected, and you have $150k in insurance coverage and you do $2M in damage to others' property/health in an accident why wouldn't you still owe them $1.9M after giving them the $100k that is not protected or insured? It would seem logical that a person would owe that until they were able to pay it or they passed away.

[bryansmith]

Can I give more than one thumbs up? Awesome and clear info. Thanks!

[goldenpig]

Very good information! I bought umbrella policy but I didn’t understand it until I listened to this video! Thanks a lot!

[slmunney]

Great informative podcast. The one question I have (leaving any bankruptcy estate exemptions aside) is why does it make sense to only buy coverage up to one's net worth? If my net worth were $1 million and I have $1 million in coverage, I would be left with nothing if I got hit with $2 million in defense costs and liability (again, not taking into account bankruptcy exemptions) . If my net worth were $1 million and I had $2 million in coverage, I would retain my $1 million in the same scenario (I think). My point/question is that it seems there is some utility in having coverage in excess of one's net worth, but I could be missing something. If anyone could explain this, I would be appreciative.

[lorie]

Thank you, I’ve heard of umbrella insurance before but didn’t actually know what it was for. Thanks so much for the explanation. Lucky me I live in Pennsylvania so probably should look into this further.

[katiedean]

This topic was so well done! Thank you for all of this information. Really useful, and easy to understand.

[thoswallace]

Large insurance limit are also a lawsuit magnet. Large claims are (relatively) rare, and most commonly require severe injuries. In addition, most insured claims are settled within or at policy limits. The cases are all done with lawyers who are paid out of proceeds of the final settlement. I would say you need enough coverage to motivate your insurers to provide a competent legal defense...but excess coverage is going to make you a more attractive target. Never skimp on primary insurance limits, but don't overdo the umbrella. This is a personal opinion that isn't commonly seen...and could argue at greater length, but paid advisors are unlikely to recommend.
So, get your primary limits to $500k and get your $1 million umbrella, say...but don't overthink it or overdo it.

[marroncox]

great stuff, canceling my umbrella now. All my net worth is in rollover retirement assets

[anthonyiannozzi]

Amazingly good information. Thank you.

[stevemlejnek]

Great information. All new to me. I've had umbrella insurance for many years, and while relatively inexpensive, it sounds like for me it has been unnecessary. Will review this information again before renewing the policy.

[senddwight]

Wow!! This was so good! Exactly what I was looking for. Thanks bro!

[rickchandler]

We’re moving to Europe in a couple months and just sold our house. We had a 1 million dollar umbrella policy and when we cancelled our home owners policy, I asked them (State Farm) about if we needed the umbrella anymore and they said no so we cancelled it.

[cruisinusa]

James thanks for the episode. It seems like you are leaving out a big factor here, that being the potential of wage garnishment in the event of a judgment. If you are a high income earner isn't that a very real concern and a reason you would want umbrella coverage even if it exceeds your net worth?

[wanjunli]

Great content as always! I have probably watched over 50 videos. Thank you!

While it's convenient to match umbrella coverage with net worth, I wonder if people should also consider future earning powers in deciding umbrella insurance coverage. For example, an early-in-career professional in a high paying job may only have $300K net worth, but if he/she is found liable for a million dollar damage in a car accident, his/her future wages may be garnished. What do you think?

[allfitz]

You said the homestead exemption protects a dollar amount and therefore the home value is irrelevant. But then at 10:45 you said the home value may rise and so it's not "set it and forget it".

[Pjeski]

Thanks, you just saved me $585 dollars a year. Which I would have seen this 3 years ago, lol.

[karen]

I live in georgia, does umbrella insurance cover us if we lose a civil lawsuit for damages awarded to the other side also attorney fees. It was a property dipute.

[wjlghnr]

James: Very informative. I have yet to hear from an insurance agent that can answer this question as well as you did. At appx. 11:50, you state that Rollover IRA's are protected under ERISA. I have read many times that Rollover IRAs lose their ERISA protection and must therefore look to state law for protections. Do you have a reference for your statement or is an edit in order?