Let's Get Started
You'll get the most value from financial planning if your specific goals and needs match a firm's philosophy and services. Let's learn more about each other.
Ready to Get Started?
Umbrella insurance is a vital component of many financial plans. As comprehensive financial planners, we analyze more than just your investment accounts—we also conduct a thorough insurance review. This includes evaluating your life and disability insurance, as well as the coverage on your home and auto policies.
A key gap in home and auto insurance policies is limited liability protection, typically capped at $300,000 or $500,000.
If your net worth exceeds the liability limits of your home and auto insurance, your financial security may be at risk.
And that is where umbrella insurance comes in:
Umbrella insurance is an additional liability policy that provides coverage beyond the limits of your home and auto insurance in case of a major accident or lawsuit.
Umbrella insurance covers a wide range of incidents, making it beneficial for both young families and retirees alike. It can protect you from liability as a result from a car accident, accidents with your kids and their friends around the house on a trampoline or swimming pool, dog bites, and even claims for bullying.
Searching online for example umbrella insurance claims will provide you with many examples, and here is how umbrella insurance pays out in a typical claim scenario.
For example, if you are involved in a car accident and sued for $750,000 to cover medical bills, property damage, and potential pain and suffering, your standard auto insurance may not be enough. Even if you maxed out the liability protection on your auto insurance policy, you likely do not have more than $500,000 in liability coverage.
If you do not have added umbrella insurance coverage in this scenario, you will have to pay out the remaining $250,000. If you have an umbrella policy, it will pay the remaining $250,000.
Calculating how much umbrella coverage to get can depend on a lot of variables. This is because states have very different laws on how different types of retirement accounts are protected in case of a lawsuit. Many states shield retirement accounts from being subject to judgements, but not every state does!
If you live in California or Minnesota, your legal protections for retirement accounts are minimal. You may need umbrella insurance to cover your entire net worth, even if most of it is in IRAs or Roth IRAs.
For those in other states, and who have a majority of their savings in a 401(k) or other protected retirement account, your need may technically be a lower amount than your net worth.
It also depends on what types of assets you have. Even if your state fully protects your 401(k), if you have a large brokerage account, valuable real estate, or other collectibles, you may still have many assets that are subject to liability.
Umbrella insurance is typically available in increments of $1 million, with a minimum coverage of $1 million, though some policies may start at $500,000.
Umbrella insurance is generally affordable, often costing a few hundred dollars per year per million dollars in coverage, though rates vary by location.
Working with a financial planner can give you a second opinion on your insurance coverage, from a neutral party. We are a “fee-only” financial advisor, which means that we do not accept any commissions from our clients. Arnold and Mote is not paid any more or less if you purchase any insurance policy we recommend. We believe that puts us in position to act only in the client’s best interests.
If you want a financial plan that helps you achieve your goals while protecting your assets, consider working with a comprehensive, flat-fee, fee-only financial planner.
Matt worked for the Department of Defense as a material scientist before changing careers to follow his interests in personal finance and investing. Matt has been quoted in The Wall Street Journal, CNBC, Kiplinger, and other nationally recognized finance publications as a flat fee advisor for Arnold and Mote Wealth Management. He lives in North Liberty, where you will likely find him, his wife Jessica, and two kids walking their dog on a nice day. In his free time Matt is an avid reader, and is probably planning his next family vacation.