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Umbrella Insurance: Liability Coverage for Worst-Case Financial Scenarios

Umbrella coverage

One mistake that many affluent individuals and families make is not planning for a worst-case financial scenario. For example, what would happen if you or someone in your family were held legally liable for an accident you were involved in?

In today’s litigious society, legal judgments of $1 million or more are not uncommon. This kind of judgment could lead to financial ruin — even for an affluent family with a high net worth.

Coverage That’s Above and Beyond

The best way to guard against this kind of financial worst-case scenario is to buy a personal liability umbrella policy. This type of insurance will provide liability coverage above and beyond the limits of your other insurance policies, like your auto and homeowner’s insurance.

For example, your umbrella policy would provide additional coverage if you or a family member were sued for causing an automobile accident. Similarly, it would kick in if someone visiting your home were injured and you were found liable for the injury. Your umbrella policy might also provide additional coverage if you or a family member were ever sued for libel or slander.

Some people think that the liability coverage included in their auto or homeowner’s policy will be sufficient for these types of scenarios. However, auto and homeowner’s policies rarely include $1 million or more of liability coverage — and as noted, multi-million legal judgments are becoming more and more common today.

In most instances, a personal liability umbrella policy is purchased along with your auto and homeowner’s policy — insurance companies usually don’t sell them on their own. Then if you face a judgment that exceeds the liability limits on your auto or homeowner’s policy, the umbrella policy will cover the judgment up to your policy limit. A $1 million limit is common, though if you have a high net worth, you might consider buying a larger policy.

Lots of Bang for the Bucks

The good news is that personal umbrella insurance is fairly inexpensive, especially when you consider how much liability protection it provides. For example, a $1 million personal umbrella policy can often be purchased for a premium of around $500 per year. This can typically be increased in increments of $1 million for an additional $500 per year.

How much liability coverage do you need? The answer depends on how much you possess in assets and how much risk you’re willing to take. As a general rule of thumb, you should purchase an amount of liability coverage equal to or greater than your overall net worth.

Talk to your insurance agent about how much liability coverage would be appropriate for your family’s situation. He or she can help gauge your needs and suggest a policy that’s right for you.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.