When Do You Need Umbrella Insurance?

March 9, 2023
Umbrella insurance can help you fill gaps in insurance coverage that can expose you to costly liabilities. Learn if umbrella insurance is right for you.

When you own property—be it a home, a car, or a boat—having adequate damage and liability insurance is essential. But if you're responsible for damage or injury to someone else's property or person, your coverage may fall woefully short.

Enter umbrella insurance, which provides liability coverage beyond most property insurance policies. This includes coverage for damages caused by you and members of your household, as well as limited coverage in the event you're sued.

"Umbrella insurance is a way to protect you in a worst-case scenario," says Austin Jarvis, director of trust, tax, and estate at the Schwab Center for Financial Research. Consider an insurance policy for a boat with liability coverage of $100,000. If a wrongful-death lawsuit leads to $1 million in damages, the other $900,000 would come from the policyholder's own pocket—unless they have a $1 million umbrella policy, which would cover the gap between the boat policy and the total damages due.

Although umbrella insurance is of particular value to affluent individuals with significant assets to protect, nearly anyone can benefit from the extra coverage. In general, Austin says those making $250,000 or more a year should consider at least a minimal umbrella policy, especially as premiums on such policies are relatively low.

"The best thing about umbrella insurance is that it's on the cheaper side because you generally have to exhaust your other policies before it kicks in," Austin explains, "whereas selecting higher liability coverage on individual policies can quickly become cost-prohibitive."

When purchasing any new insurance, an experienced broker can help ensure your policies work together while avoiding unnecessary coverage. "As a rule of thumb, your total coverage should never exceed your net worth," Austin says, "because under no circumstances do you need to protect more than you own."

Charles Schwab works with Crump Life Insurance Services (Crump) to make insurance available. Insurance specialists at Crump can provide you with detailed information about insurance, help determine what's right for you, and, if appropriate, assist you in selecting a policy that fits your needs.

Charles Schwab & Co., Inc., and Crump are not affiliated. Both are licensed insurance agencies.

The insurance products available are underwritten and issued by participating insurance companies. Not all policies and product features are available in all states. This is not an offer or solicitation in any jurisdiction where the policies are not approved for sale. Any obligations under the policies are the exclusive obligations of the insurance companies and are subject to the financial conditions of the insurance companies.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.