For many Americans, the only thing standing between financial ruin and peace of mind is an umbrella insurance policy. What is umbrella insurance, and why do you need it?
The Umbrella Insurance Use Case
In today's litigious society, a single accident can threaten your financial future. This is where umbrella insurance shines as a powerful yet often underused defense. Standard home and auto policies provide a basic level of protection, but when faced with court judgments, their coverage is often quickly exhausted. This is where your umbrella policy would step in and pay on your behalf.
And while the protection on your underlying policies may seem like a lot of money, it is becoming increasingly clear that the protection they provide is becoming less adequate.
Factors such as aggressive litigation, third-party funding, and a growing tendency for juries to award very large damages are driving award sizes higher. A study conducted by Swiss Re Institute in 2024 found that liability claims rose by 57% between 2014 and 2024. This trend suggests that the standard protection levels provided on underlying policies are becoming increasingly irrelevant.
An Underinsured Population
Despite the ever-growing risk of liability claims, many Americans remain under protected. According to a 2025 survey conducted by The Hanover Insurance Group, 83% of homeowners are aware of umbrella insurance, but only 23% actually have a policy. Furthermore, 66% of respondents indicated they would likely add umbrella protection once they understood what it covers.
This suggests a significant risk: many policyholders assume their standard policies will provide adequate protection and expose themselves to financial ruin if found liable for an accident. For many Americans, an adverse judgment is the only difference between a comfortable retirement and working until their death.
How Exposed Am I?
The first thing that one needs to do to protect themselves is to examine their level of exposure. Generally speaking, the level of protection provided by your umbrella policy should be comparable to your net worth.
Extra consideration should be given to qualified assets (retirement accounts that are protected by federal law) and non-qualified assets. Since non-qualified assets lack the protections that qualified accounts are given, one should be particularly mindful of the cumulative size of one's non-qualified assets.
Another helpful exercise to gauge your level of exposure is to Google yourself and see what comes up. Perhaps you hit someone with your car and exchange contact information.
Initially, the person you hit is not all that upset, and the likelihood of a suit is low. However, upon Googling your name and finding that you are a prominent figure in the community, their mindset changes. Now they assume you have ample resources to handle a lawsuit, and this person could view this accident as a potential payday.
Often, the image we have of ourselves and the image painted by a web search can be vastly different. Consider the image Google is painting of you and keep that in mind when evaluating coverage.
Your lifestyle should also be considered. Those who attract more risk should pursue additional coverage. If you and your spouse own a ranch outside of town, you don't host guests often, and you don't engage in risky behavior, then your need for protection is lower as the likelihood of a claim is low.
Now, what if you own a lake house with a boat and frequently have guests over, taking them water skiing? In this scenario, you are taking on additional risk and you may need extra coverage.
Summary and Next Steps
Umbrella insurance is not about expecting the worst - it is about planning for it. In a world in which court awards are growing increasingly large and legal risk is rising, this coverage can offer you peace of mind. Rather than betting on luck, call your insurance provider and ask them about how you can protect your assets via umbrella insurance.
Schedule a Consultation
We have helped our clients answer these questions and more. If you want a clear understanding of your financial future, and need help making changes to reach your goals, schedule a consultation and we can get started.
The material has been gathered from sources believed to be reliable, however Bedel Financial Consulting, Inc. cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through Bedel Financial Consulting, Inc. Advisory services are only offered where Bedel Financial Consulting, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place.
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