I’m trying to determine which if a 1 million would be enough or would 2 million be more appropriate. Most of my assets are in retirement accounts and my primary residence. Do I need an umbrella to cover these type of assets? Or should I just have it for after-tax accounts and cash equivalents?
We gave up our umbrella policy because almost everything we have is exempt from bankruptcy.
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What assets are exempt from creditors is determined by state law. A 15 minute consult with a bankruptcy attorney or collections’ attorney will give you a competent answer for your state.
Umbrella policies protect you from liability judgments, not specific accounts—retirement and home equity can still be at risk depending on state law.I would size it based on worst-case liability exposure (income, lifestyle, risks), not just taxable assets—$2M is often cheap peace of mind.
A 15-minute consult with an attorney that yields a useful answer is probably about as easy to find as a $100/yr umbrella policy.
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The general rule of thumb is to match your non-exempt assets. A 401k is always exempt. An IRA exemption level depends on state law - for example California does not exempt all IRAs. A house exemption also depends on state law. Florida and Texas fully exempt while Nevada barely exempts. So if you have money outside of retirement and a primary residence (i.e. you have Bank accts, brokerage accts or rental property) then the rule says to match the level of those assets. I went higher on mine since each additional $1 million is typically $150/year. The strategy is to think about the injured party suing you. If your non-exempt personal assets are $500K and you have a $2 million policy, how likely would they be to just settle for the $2 million vs trying to get that plus your $500K. If the umbrella is big enough, they might just be happy with the $2 million settlement rather than going to court in hopes of a $2.5 million judgment. But if you have $10 million in non-exempt assets, then they are not as likely to settle for the $2 million umbrella coverage if they think they could get that plus your $10 million at trial.