How do I buy an umbrella insurance policy?

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Dear Insurance Adviser,
I have a home, three rental houses and four cars, including my daughter’s and wife’s. I have homeowners insurance with one company and auto insurance with another. I think it would be smart to get an umbrella insurance policy. Do I talk with my home insurer, my auto insurer or both to get an umbrella policy? How do I decide how big the policy should be?
— Ron

Dear Ron,
I agree: I think you should have an umbrella insurance policy. As for your question on how big the policy should be, there is no set rule of thumb to guide you. Your decision has a lot to do with your comfort level.

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Umbrella coverage is the best buy in the insurance business. Where else can you get $1 million of anything for about $200 a year? And you can get each additional $1 million in coverage for $100 more per year.

You buy an umbrella policy to protect your assets from major lawsuits. I advise you to buy $1 million more coverage than you think you will need.

Buy at least as much as your net worth. And not just today’s net worth. Consider future net worth, as well. You may just be getting started financially but have a high earning capacity. Or, you may have low net worth currently, but soon will be coming into a sizable inheritance. All of these scenarios make you a good candidate for an umbrella policy of $2 million or more.

As for where to buy the policy, don’t focus on the price alone. The most important ingredient is a skilled agent, knowledgeable about the umbrella coverage forms, because they vary from a stripped-down model to fully loaded versions. Consumers often don’t have any idea which one they are buying. Unlike car and home insurance, umbrella insurance policy language is unregulated.

This may be a good time to consolidate all of your insurance with one agent. That greatly reduces the chance of coverage gaps at claim time.

I hope this helps. Good luck.

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