Umbrella insurance provides extra liability coverage above and beyond your existing auto, home, or other insurance policies. It covers costs if you are sued for more than your underlying policy limits.
But how much umbrella coverage should you get? The answer depends on your personal assets and risks.
This article explains what umbrella insurance is, who needs it, and how to use an umbrella insurance calculator to determine the right amount of coverage.
What is Umbrella Insurance?
Umbrella insurance is a separate policy that sits on top of your other insurance policies to give you additional liability protection. It kicks in when the liability limits on your homeowners, auto, or other policies are exhausted.
For example, say you have:
- Homeowners insurance with $300,000 liability coverage
- Auto insurance with $100,000 per person/$300,000 per accident bodily injury coverage
If you are sued for $500,000 in damages related to a car accident, your auto policy would cover the first $100,000 per person. But you’d be on the hook for the remaining $400,000.
This is where umbrella insurance steps in. It covers what your underlying policies do not, up to the umbrella policy limit you choose.
Umbrella policies usually start at $1 million in coverage, but you can get additional increments up to $5 million or more.
Who Needs Umbrella Insurance?
Umbrella insurance is recommended for high net worth individuals who have significant assets to protect. This includes:
- Homeowners, especially those with expensive houses or equity
- People with investment properties like rental homes
- Those with high retirement savings or brokerage account balances
- Business owners
- Professionals in liability-prone fields like medicine
Without umbrella coverage, your assets could be at risk if you are sued. Umbrella insurance provides an extra shield.
Even if you have $500,000 in liability coverage through your home and auto policies, it may not be enough in today’s increasingly litigious society. Legal judgments and settlements commonly exceed $1 million.
How Much Umbrella Coverage Do You Need?
Deciding how much umbrella insurance to get depends on:
- Your net worth
- Home equity
- Retirement savings
- Existing insurance liability limits
- Risk factors like having a pool
You can use an umbrella insurance calculator to get an estimate tailored to your situation. Here are some top options:
WalletHub’s Umbrella Insurance Calculator
WalletHub offers a straightforward umbrella insurance calculator that accounts for key factors like:
- Net worth
- Home equity
- Retirement savings
- Existing liability limits
It gives you a suggested umbrella policy limit based on your inputs.
WalletHub also provides useful questions and answers about umbrella insurance costs below the calculator.
Trusted Choice Umbrella Insurance Calculator
TrustedChoice.com, a consumer insurance website, has an umbrella quote tool that estimates your premium based on:
- Location
- Type of insurance you want to add it to (home, auto, etc.)
- Desired amount of umbrella coverage
Their calculator shows the ballpark cost of different umbrella policy limits. However, you’ll need to get a formal quote from an agent for exact pricing.
Independent Agent Calculators
Many independent insurance agencies also offer umbrella insurance calculators on their websites. These are handy for getting quotes tailored to your area.
For example, Texas-based Insurance Navy and Brightway Insurance have handy umbrella quote tools.
Look for a calculator from an agency in your region to see how much umbrella coverage costs near you.
How to Use an Umbrella Insurance Calculator
Follow these steps when using an umbrella insurance calculator:
-
Determine your net worth
Add up all your assets like your home, vehicles, investment accounts, retirement savings, cash accounts, and personal property.
Then total your liabilities, including any mortgage debt, auto loans, student loans, credit card balances, etc.
Your net worth is your total assets minus total liabilities.
-
Find your home equity
Your home equity is the current market value of your home minus anything left on your mortgage.
-
List retirement account balances
Include amounts in IRAs, 401(k)s, pensions, and other retirement accounts.
-
Enter your existing liability coverage
Check your homeowners and auto policy declarations pages for the per-person and per-accident bodily injury liability limits, as well as the property damage liability limit.
Enter your per-person bodily injury limit for the calculator.
-
Input location
Some calculators will ask for your ZIP code or city/state, which allows them to factor in local costs.
-
Get your suggested umbrella coverage amount
The calculator will recommend an umbrella policy limit based on the details you provided.
This gives you a starting point to discuss with your insurance agent. You can adjust up or down as needed.
What is the Average Cost of Umbrella Insurance?
Umbrella insurance costs an average of $150 to $300 per year for every $1 million in coverage, according to the Insurance Information Institute. However, premiums vary considerably based on risk factors like:
- Age
- Location
- Net worth
- Claims history
- Amount of coverage purchased
For instance, a $1 million umbrella policy could cost:
- $150/year for a 45-year-old with few assets and no claims.
- $500/year for a high-net-worth individual with substantial home equity.
The more assets you have to protect, the pricier your umbrella insurance. But it’s inexpensive peace of mind.
Umbrella Insurance Calculator FAQs
How is umbrella insurance calculated?
Insurers calculate your umbrella premium based on the amount of coverage you want and the limits of your underlying policies.
If you already have high liability limits, your umbrella insurance costs less. Lower underlying limits mean you need the umbrella coverage to kick in sooner.
Your overall net worth, assets, age, location, and other factors also determine your rate.
Do I have enough liability coverage?
To find out if you have adequate liability insurance, use an umbrella calculator to add up your:
- Assets
- Existing policy limits
- Risk factors
Compare the suggested umbrella amount to your current coverage.
For most homeowners, having at least $500,000 to $1 million in liability protection is recommended. You likely need an umbrella policy if your coverage is below that.
Can you have two umbrella policies?
Yes, you can have multiple umbrella policies if you want to increase liability protection under separate underlying policies.
For instance, you could have a personal umbrella policy that covers your home and autos, plus a commercial umbrella policy to cover your business liabilities.
The coverage from the policies does not stack or combine. They simply provide extra protection in different categories.
What affects the cost of umbrella insurance?
Factors that increase your umbrella insurance costs include:
- Higher amount of coverage
- Expensive home or assets
- Large retirement account balances
- Low underlying policy limits
- Poor credit
- High claims history
- Urban location
- Young or old age
Get an Umbrella Policy That Fits Your Needs
Umbrella insurance provides crucial extended liability coverage that protects your hard-earned assets. Use an umbrella calculator tailored to your situation to help determine the right amount of protection.
Connect with an independent insurance agent to discuss your umbrella policy options. They can explain this valuable coverage in more detail and shop quotes to find you the best rate.
Do You Really Need an Umbrella Policy? (And What is the Right Amount?)
FAQ
How much is a $1000000 umbrella insurance policy?
What net worth do you need for umbrella insurance?
How do I choose an umbrella limit?