When consulting with a client on their umbrella policy (also known as excess liability) the question of “How much insurance do I need?” ALWAYS comes up. It is a tricky question, but the answer is: “More than you may think!”

The reality of the situation is that as an insurance agent we always need to recommend higher limits but the right answer comes down to the individual or family’s risk tolerance combined with our guidance.

One end of the argument says you should cover your net worth. I have seen and used industry formulas that add up an individual or family’s net assets then subtract the liability coverage currently in force. If you have a positive number, you are underinsured. Unfortunately, that formula also doesn’t account for a key factor: future earnings. In the event of a claim, while most likely catastrophic, your future income could be garnished up to 40% to help pay off a court ordered award. This type of situation – while admittedly rare – is easily avoided by proper insurance coverage.

The other side of the argument can be made for the likelihood of risk. If you have younger children that are inexperienced drivers, your risk is higher but if you are experienced or don’t even own a car, your risk is lower thus the chance of loss isn’t as great. Sometimes people don’t carry limits that cover their net worth because they are comfortable taking that risk.

After a boating accident or a case of libel via social media clients want to have enough coverage. “Penny wise, pound foolish” is a cliché but it’s true.

Purchasing an umbrella is a very low cost for the limits of insurance offered. Umbrella coverage has also broadened in the past few years. Other things to consider when purchasing an umbrella is coverage for non-profit board service and employment practices liability for domestic employees such as a nanny.

In summary, it is very important to customize your coverage and your limits. Connect with your DG advisor for more information.