What Does Dave Ramsey Say About Umbrella Policies?

Personal liability umbrella insurance extends protection beyond standard policies, providing an additional layer of financial security. It safeguards accumulated wealth against significant liability claims and unforeseen incidents.

Understanding Umbrella Insurance

Umbrella insurance provides an extra layer of liability coverage, extending beyond typical policies like homeowners, auto, or watercraft. It protects an individual’s assets by providing additional coverage when existing policy limits are exhausted. This policy helps pay what is owed if someone is at fault for injuries or property damage.

This coverage applies to bodily injury, property damage, and personal liability not fully covered by underlying policies. It can cover claims like libel, slander, false arrest, or liability from rental units. If damages from a car accident exceed auto insurance limits, or medical bills from an injury on your property surpass homeowners coverage, an umbrella policy covers the remaining costs.

Determining Your Need for Coverage

Assessing the need for an umbrella policy involves evaluating financial circumstances and potential liability exposures. Individuals with significant assets like savings, investments, or real estate often benefit, as these are at risk in a lawsuit. Standard home and auto policies have liability caps; if a claim exceeds these, personal assets could be targeted.

Certain lifestyle factors and possessions increase the need for an umbrella policy. Owning high-risk properties like swimming pools or trampolines, or having pets that could cause injury, elevates liability exposure. Engaging in activities like coaching youth sports, volunteering, or frequently hosting guests also increases lawsuit potential. Households with teenage drivers or recreational vehicles may face higher risks an umbrella policy can mitigate.

Dave Ramsey’s View on Umbrella Policies

Dave Ramsey’s financial philosophy emphasizes protecting accumulated wealth with adequate insurance as net worth grows. He advises purchasing an umbrella policy once net worth reaches $500,000. His rationale is that substantial wealth needs protection from lawsuits that could deplete assets.

Ramsey highlights that umbrella policies offer significant liability protection, often starting at $1 million in coverage, for a relatively low annual premium (around $200 for $1 million). This cost-effectiveness, compared to increasing limits on individual home or auto policies, makes it an attractive option for asset protection. He suggests the policy should ideally cover an individual’s entire net worth, or more if there’s a higher risk of being sued.

How to Obtain an Umbrella Policy

Acquiring an umbrella insurance policy involves several practical steps. First, review existing auto and homeowners policies to understand their liability limits. Most umbrella insurers require minimum liability limits on these underlying policies before issuing an umbrella policy, often $250,000-$500,000 for auto and $250,000-$300,000 for homeowners.

Once current coverage is understood, contact your existing insurance provider to inquire about adding an umbrella policy; some companies offer bundling discounts. Seek quotes from multiple carriers to compare coverage options and pricing. The application process involves providing personal information, vehicle and property details, and confirming underlying policy limits.