It is nice to be back to this blog. Over my little vacation I was actually inspired to write a number of new posts based upon conversations with some friends and colleagues. More of those will be coming in the next few weeks.
I have noted several times on this blog that I like to listen to different financial programs. I will listen to Dave Ramsey, Bob Brinker, Ric Edelman, and some local shows here in the New England area. All of them provide different perspectives and offer different advice. Maybe I have become a finance advice junkie to some extent. One of the issues brought up by several of the programs in the past couple of weeks has been umbrella insurance.
What Is Umbrella Insurance?
Umbrella insurance does not offer coverage for when your umbrella breaks down in a storm (although I am sure someone will come up with something like that someday). Umbrella insurance is an insurance policy that actually offers move liability insurance coverage. It is a product that is fairly inexpensive and meant to cover you against lawsuits if you have a lot of different assets (e.g. high assets in a 401k, lots of cars, a home, etc).
Considering it seems that everyone is suing everyone nowadays umbrella insurance seems to make a lot of sense. I mean who doesn’t want the extra coverage if something happens to you. Or if someone slips in your home and injures themselves. Your homeowner’s policy or renter’s insurance might not be enough to cover different damages.
Who Should Get Umbrella Insurance?
Let me state at the outset I don’t think I will be getting umbrella insurance anytime soon. It is not that I don’t think it is a good product. It is actually fairly inexpensive (anywhere from $300-$1000 per year). Spending $30 a month for some extra coverage isn’t a bad deal. I mean people spend that much money on lunch in a week or going out to eat at a local chain restaurant. You cut that out one day a week and you have paid for the insurance.
Umbrella insurance, from what I have read, is really for people who have larger net worths. The recommendations I saw was that people should think about umbrella insurance if they have net worths of $500,000 or more.
On the surface that might seem like a lot of money. And it is. However, when you factor in what we consider part of your net worth it isn’t out of reach for most people . Your net worth is your house, retirement investments, cars, etc, minus whatever money you owe on those items. When we put that all together a good chunk of Americans have assets that are probably worth $500,000 or more, particularly if you include your home. Our net worths are smaller because our 401k balance might not be that big or we have a larger mortgage, which we would subtract from the value of your home, thus giving you a smaller net worth. Yet I would be willing to bet that a good chunk of people I know have assets of $500,000 or more or at least net worths that high. Therefore, umbrella insurance might be a good product to consider for some people.
Mrs. ROB and I won’t be buying umbrella insurance anytime soon because we don’t have a net worth that is quite that high yet. We both have student loan balances, a mortgage, a personal loan, and a car to pay off. We have larger assets, but our debts are also up there. So it will be a while before this makes sense for us. If someone does sue us they aren’t going to get much. But I could definitely see us buying this in the next few years as we pay down the mortgage, get rid of the consumer debt and lower our student loan balance. Right now, we have the basic minimums for liability insurance on our cars and enough liability on our home owners insurance to cover fire damage and a rebuild.
The Bottom Line: Based upon my research umbrella insurance looks like a pretty good product if you have a larger net worth, which I am sure some of my friends do, at least in terms of assets. It might make sense for them to spend an extra $30 a month or so to protect those assets. The cost of umbrella insurance will vary depending on how much coverage you get. Most umbrella insurance policies have coverage of $500,000 to $1 million dollars. However, if you have lots of homes, assets, etc, some people could get higher amounts of coverage.
Again, this is just a basic insurance policy. It won’t make you any money. But we live in the most litigious society in the world. People sue people all of the time and unfortunately can bankrupt some people for an accident. An umbrella policy might be something to think about for that extra piece of mind.