Personal Finance Essentials
Determining Your Coverage
Umbrella Liability Insurance > Determining Your Coverage
Matching Coverage to Your Net Worth and Financial Risks
Your umbrella coverage should reflect what you stand to lose. As a general rule, your coverage should be at least equal to your net worth – typically a minimum of $1 million for most people. Those with high-priced homes or substantial assets should consider policies of $2 million to $5 million or even more.
When determining the right amount, think not only about what you own today but also about your potential financial risks. Liability from lawsuits represents one of your largest financial exposures. The purpose of umbrella coverage is to protect everything you’ve built – and to make sure a single unfortunate event can’t wipe it out.
Your ideal coverage should reflect two things:
What Affects Your Premium and Eligibility
Because umbrella policies provide substantial protection at a relatively low cost, insurance companies are selective about who they’ll cover. Getting a policy is not always straightforward, and your premium – and whether you qualify at all – depends on several specific factors.
Insurance companies base your premium on:
- Where you live
- The cars you own
- The number and age of drivers in your household – and their driving records
- The number and nature of any prior claims
The presence of young drivers in your household has a particularly significant impact. Teenage drivers are notoriously accident-prone, and insurance companies know it. Qualifying for an umbrella policy – and qualifying at a reasonable premium – becomes much harder once you have a teenage driver in the house. This is why you should obtain umbrella coverage before your children start driving, not after. By the time they’re behind the wheel, getting a new policy may be difficult or expensive.