Katherine from Buffalo, NY reached out regarding Umbrella Insurance …
I am a new listener and I love your podcast. The way you break down topics and explain them very easy to understand and makes me feel like I can achieve my financial goals with the correct planning and mindset.
I realize that this isn't a finance question, however, it is a family-safety/ planning question. Can you briefly explain the importance of an umbrella policy? I know it is important to protect your assets but I am confused when the right time to have one is. My husband and I are just buying our first house and are unsure if we need one yet. Any information or advice would be appreciated!
Thanks so much for reaching out to me.
I'm happy you're enjoying the show. I have so much fun doing the show and it makes it even more fun when I get messages like yours. Thank you!
As for your question, I’ll caveat that I’m not an insurance specialist or financial planner so please take my answer with a big ole grain of salt.
Why We Have Umbrella Insurance
For us, umbrella insurance was essentially meant to protect us against getting sued.
I’ve never been in a lawsuit (currently knocking on wood) and I hope to never be in one. But from what I’ve heard, they suck! Lawyers, money, arguments, lawyers and more money. To avoid that mess, umbrella insurance has been our coverage.
- If someone slips and falls at our house and decides to sue us for their injuries and the cost fell outside of our homeowner's insurance, then we'd be covered by umbrella insurance.
- If I get into a major car accident and my car insurance does not cover all the damages, my umbrella insurance would support us from paying out of pocket.
- With us considering buying our first rental property and starting small businesses, umbrella insurance is that little inexpensive coverage that makes us feel comfortable.
Related Article: 5 Term Life Insurance Providers That Make the Process Easy
When We Got Umbrella Insurance
Once we started accumulating assets and grew our net worth to around $500,000, we decided to get a policy.
Now, I’m not sure of your financial situation Katherine since you and your husband are just now getting married. If you're still getting yourself out of debt and don't have a lot of assets, it might not be necessary.
According to Fidelity, here are a few reasons to consider getting umbrella insurance outside of the reasons I already shared:
- Have a certain type of dog (that may just bite someone – ouch lawsuit)
- Ski, surf or hunt (I’m assuming because of the harm you might accidentally cause someone else)
- Coach Youth Sports (again, I’m assuming you may get sued by a parent for some reason)
- Own a swimming pool or trampoline (again, injuries at your house, then you get sued. The pool party is over.)
Essentially, a variety of uncomfortable and not-so-fun situations like those.
How Much Does Umbrella Insurance Cost?
Cost totally depends on how much you get and who you work with.
For us, we pay $163 per year for $1 million in coverage. From what I’m reading on the interwebs, we may be able to get closer to $100 for that $1 million in coverage.
The point is … it’s cheap. You get lots of bang for the buck.
It’s probably a good bet for the insurance company too because the people who buy this policy must already be very careful and smart people.
Where Can You Buy Umbrella Insurance?
You can get it from the same company where you get your homeowners insurance or auto insurance typically. Make sure to ask about getting a discount if you bundle your insurance coverage together. The more policies, the better deal you’ll get.
Insurance is funny right?
Even though you’re paying all this money for homeowners, auto, life, health, umbrella, etc … you HOPE you’ll never really need it.
But when something does come up, MAN, you’ll be glad you had it.
Do you have umbrella insurance? If so, why?
Please let me know in the comments below.
We also have it. BUT…we are finding out as soon as our kids start getting driving permits, our cost will 3x (w/ first child driving, who knows w/ second) AND coverage is suddenly limited when he starts driving unless go through some special hoops. [sigh]
Wow! The teenager factor increases everything! I hear they even eat a ton more 🙂
I’m hopeful there are autonomous cars when my daughter turns 16. Perhaps insurance rates will go down across the board?
I have a teen driver and I pay $400.00 a year for $2mil umbrella. If I wanted up to $3 to $5 million no teen drivers. I guess they tend to screw up big time.
Wow! Yeah, I suppose with our super litigious society, you can’t be too careful!
Glad you’re covered for the $2 million!