What is an umbrella? It covers any personal liability that exceeds the limits of auto and homeowners insurance policies. It also covers other types of personal liability, such as libel or slander, but does not cover business-related activities.
Coverage options range from $1,000,000 to $10,000,000. Typically I recommend at least $1,000,000 for people making a good income even if they do not yet own many assets, to help prevent the risk of their wages being garnished in the case of a major judgment against them. Of course people with substantial assets may be wise to acquire higher limits relative to their net worth.
Does that seem excessive? Wouldn’t a $250,000 liability limit per person be more than enough to cover any auto accident? True, it would cover most accidents, but not every accident.
What if the person you hit is killed or sustains injuries so severe that she cannot work for the rest of her life? How much should her family be entitled to receive? That depends on her age and income.
Let’s say she is 35 years old and makes $100,000 a year. Would it be unreasonable to suggest that she could have worked at least another 20 years if you had not hit her? Income of $100,000 per year for 20 years would be at least $2,000,000 total potential income lost.
What about the cost of medical expenses, pain and suffering, and vehicle damage, on top of the income loss? What would you want for your family if you were the victim in this situation? Would you be greedy for wanting at least $2,000,000, or would that be reasonable compensation for your loss? I think it would be totally reasonable, and so do the courts.