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Return To: Umbrella Insurance – The Ultimate Guide

When you have a net worth of at least $500,000, you have a greater risk of losing all that you’ve worked for. A single lawsuit is all it takes to force you to build your wealth back up from scratch. Standard insurance policies may cover specific damages, but what if you face lawsuits that go beyond your homeowner’s or auto policies?

You need umbrella insurance to make up for what standard insurance coverages lack. For instance, you cause a car crash and leave several people injured. Your auto insurance policy can take care of medical expenses and property damage costs. But when a victim discovers the money you make, they can sue you for more money. The situation escalates, and you have to come up with more money to cover lawsuits.

All the money you’ve made working hard for decades could all end up paying off a nasty lawsuit. So, in this article, we discuss everything you need to know about umbrella insurance. From the signs that say you need such coverage to how it protects you, learn how you can avoid the problems that your money faces.

Do I Need Umbrella Insurance?

Dave Ramsey, a renowned American finance advisor, author, businessman, and radio host recommends umbrella insurance policies for anyone making at least half a million dollars. A large net worth makes you a target to people who know you’re wealthy. Umbrella insurance protects your savings from going down the drain.

Umbrella insurance can raise your liability coverage to at least one million dollars. For what it’s worth, this policy is a steal. You only need to pay a few hundred dollars annually to get this coverage. To know if you need this coverage, see if any of the following cases apply to you. If you can relate to at least two situations, consider speaking with an insurance agent to discuss your options for umbrella insurance.

  • You have public indicators of your wealth: If you drive a sports car, you’re letting people know that you can afford such luxuries. If you cause an accident, your victims can sue you for more money.

People who know that you are successful and have money won’t hesitate to sue you. So, you’ll need umbrella insurance to cover the hundreds of thousands or millions of dollars that you make.

  • You own multiple properties: If you have accessible lots like a pasture or beachfront, anyone who gets injured on your property can sue you. Even if you don’t invite these victims, simply knowing that you own a private lot gives them the go signal to file a lawsuit against you.

If you rent out properties, then you also face the risk of tenants suing you for injuries. Landlord insurance may cover part of the damages, but in the event that the amount exceeds your policy, umbrella insurance can back you up.

  • You own miscellaneous vehicles or home attractions: If you have dirt bikes, ATVs (all-terrain vehicles), boats, or jet skis, then you risk some bodily injury or property damage that standard auto insurance policies may not cover.

Home attractions like trampolines, swimming pools, treehouses, or playgrounds are what insurance companies call attractive nuisances. These things can cause injuries and lead to lawsuits that require umbrella insurance to protect your savings.

  • You are sociable offline and online: If you host parties often, then you invite more people to your home, which increases the risk of accidents on your property. Being more prone to accidents means you are more prone to lawsuits.

Meanwhile, when you share your strong opinions online, you also risk facing lawsuits for online slander, defamation, or libel. Even close relatives who people associate with your wealth are potential targets. If you don’t have an online presence but a close relative does, that connection can be enough for a person to file a lawsuit against you.

Umbrella Insurance Coverage

Now that you know what it takes to apply for umbrella insurance, you need to know what exactly this policy protects you from. There also are some items that this policy does not cover despite being called “umbrella” insurance. Here’s an overview of what umbrella insurance covers and what it does not cover:

Does CoverDoes Not Cover
Bodily InjuryUmbrella insurance pays for the medical costs that your homeowner’s insurance policy does not cover. Bodily injury cases that umbrella insurance covers include curious children who might break their arm after falling from your treehouse.Personal PropertyUmbrella insurance does not pay for damages you dealt to your properties. If you break your roof after attempting to fix it, you will have to pay for repair costs out of your pocket.
Property DamageLike auto insurance, umbrella insurance covers the property damage that you have caused with your vehicle. Umbrella insurance includes coverage for vehicles other than cars, like jet skis damaging a dock, or boats that crash into public property.Criminal ActivityUmbrella insurance does not pay for bodily injury or property damage that you intentionally caused others. This policy also does not cover any legal fees that follow.
Reputation DamageUmbrella insurance pays for reputation injuries you might have caused through online or offline slander, defamation, or libel. These lawsuits can be expensive. In online cases, cyber insurance may help you. But when you cause reputation damage in person, then umbrella insurance has your back.Flood DamageUmbrella insurance does not pay for damages that floods cause. Flood insurance policies exist for this reason. The only time umbrella insurance can pay for flood-related damage is when others sue you for floods that you might have caused. For instance, you left the sink running, causing your apartment to flood. Lower floors get damaged and they sue you. Umbrella insurance covers your legal expenses.
Legal FeesYou must have noticed that umbrella insurance pays for almost every kind of lawsuit you could face when you make at least $500,000. That is umbrella insurance’s primary function, to put everything simply. You need the legal fees to pay for your defense in court.Contractor InjuriesWhen contract workers have you sign contracts that hold you responsible for them, you become liable for any injuries they may incur. Umbrella insurance does not pay for any medical expenses should these contractors get hurt under your care while they are on your property.
Umbrella Insurance – Covered Or Not Covered


As you accumulate wealth after decades of work, you put a target on your back for potential lawsuits that could leave you back where you started. You need the right protection to keep your savings from all going to legal expenses. That’s what umbrella insurance is for.

If you have a net worth of at least half a million dollars, then you should consider speaking with an insurance agent to get an estimate of how much umbrella insurance you need to purchase. You need the correct amount of protection to make sure that you keep your savings for what you intended and not spend it on unplanned lawsuits.

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