Clients ask me for a number. The honest answer is that the number is personal, but the method for finding it is not.
What should the limit be based on?
Cover your net worth, including the market value of your home. Cash, investments, real estate and anything else a judgment could reach. That is where an attorney starts when they look at you, so it is where we should start when we structure the policy.
People are often surprised how quickly this adds up in our market. A primary residence in Chevy Chase or McLean, a rental property, retirement accounts and a college fund can put a household well past a million dollars of exposure without anyone thinking of themselves as wealthy.
Is a $1 million umbrella enough?
For many households in the DMV, it is a starting point rather than a finish line. I write plenty of $1 million umbrellas, and I write a great many at $2, $3, $5 and $10 million.
The good news is that additional limit is priced efficiently. The first million costs the most; each million after that costs considerably less. Moving from $1 million to $3 million rarely doubles the premium, and for most of my clients it is the cheapest meaningful protection they can buy anywhere in their financial plan.
Above roughly $5 million, carriers ask more questions — occupations, other drivers in the household, pools, boats, board memberships and any pending litigation. That is normal, and we handle it as part of the application.
What I recommend
- Add up what a judgment could reach, including home equity, and use that as your floor.
- Add future earnings to the picture if you are early in a high-earning career. Wages can be garnished in Maryland, and that exposure is real.
- Ask what the next limit up costs before you settle. Clients are regularly surprised that it is modest.
- Review the limit every few years, and after any material change in assets.
The short version
Size the limit to your net worth including home equity, because that is where a plaintiff's attorney starts. Additional millions are priced efficiently, so ask what the next limit up costs before you settle on a number.
Let me know if you would like me to take a look at where your limit sits today.
