Am I Overinsured?

Daniel believes he is overinsured. He has assets worth about $100,000 and makes about $77,000 a year. He wants to know if he should carry an umbrella policy. Dave says he shouldn't need it at this point.

QUESTION: Daniel in San Antonio believes he is overinsured with his current insurance company. He has assets worth about $100,000 and makes about $77,000 a year. He wants to know if he should carry an umbrella policy. Dave says he shouldn’t need it at this point.

ANSWER: You’ve got a total on the asset side over $300,000 or $400,000. I don’t think an umbrella policy is necessary here. I think you carry a high liability level, which everyone should on their car insurance because it’s inexpensive, and a high liability level on your homeowner’s insurance. Usually $500,000 would be considered high—maybe $1 million on those—but you don’t need the extra umbrella policy.

The extra umbrella policy is if somebody were going to come after you for more than $500,000, you might carry an extra umbrella that attaches to the top of your car insurance and your homeowner’s insurance liability amounts, so you’d have an extra $1 million for roughly $200 a year. I’d want you to have the highest level anyway. Those are probably smart things to do, but I don’t think that this is a necessary expense right now.

Umbrella policies are one of the best buys out there when you need them. It’s really when you’ve got enough income or enough assets that you’ve got a target on your butt, and you really don’t. That’s not a putdown. When you double your asset base, yeah, I’d probably pick it up. When you go from $400,000 and you’re up in the $800,000 to $1 million range—not net worth but total things owned—then I probably would pick it up at that point. I encourage people as they’re getting some wealth really going to add the umbrella policy. It’s a wonderful buy, and it’s a very smart thing to do. But in your case, I wouldn’t waste the money on it. I didn’t when I was at your level.

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