The Truth About Umbrella Insurance: What It Really Covers
So when Mark wrote about is umbrella insurance inherently bad, a scam, or worthless? No. But is it for everyone? Absolutely not. Though most insurance companies would prefer no one say otherwise.
First, it’s important to clarify—he doesn’t sell insurance. That matters, because 99% of the articles online about umbrella insurance come from people or companies with a financial interest in selling it—or at the very least, making insurance companies look good.
He once searched for nearly an hour and couldn’t find a single article that openly discussed any problems or drawbacks with umbrella insurance. It’s not surprising. Wall Street–owned media outlets don’t criticize products they benefit from, and they dominate Google’s search results. This article is meant to challenge that status quo.
As an attorney, CPA, and small business advisor, he has no financial incentive to push insurance. His duty is to his clients—to help them save money, minimize taxes, and protect assets. That includes offering advice that’s actually honest, helpful, and rooted in fiduciary responsibility.
1. Umbrella Insurance Is for Gaps and Excess Claims Only
Umbrella insurance is not a primary coverage. It exists solely to cover what a standard policy does not. It’s not extra coverage or a replacement. It’s there, ideally, when a primary policy doesn’t cover the full extent of a claim.
Example:
Someone is texting while driving, causes a tragic accident, and is held liable for $1M. Their auto insurance covers $500K. The umbrella policy (if applicable and without exclusions) may cover the remaining $500K—assuming vehicular manslaughter laws don’t override coverage.
2. A Personal Umbrella Is Different from a Business Umbrella
Many people mistakenly assume one umbrella policy fits all. Not true. If someone owns rental property or runs a business, a personal umbrella won’t help in the event of a claim from a tenant or employee.
Example:
A landlord rents to college students. They host a party, someone drowns due to a property defect, and a $1M wrongful death claim follows. The homeowner’s policy doesn’t apply—it only covers the landlord’s personal residence, not the rental. The umbrella policy also doesn’t cover the claim because the primary policy doesn’t apply in the first place. Legal structure failures and missed formalities further compound the issue.
Recommendation:
Get landlord insurance. Consider a commercial umbrella policy. Set up the LLC properly with full annual maintenance—real asset protection, not just paperwork.
3. Umbrella Insurance Is Cheap Because It Rarely Pays
Umbrella coverage is inexpensive because it’s seldom used. It exists for unlikely, catastrophic events. Statistics show the average auto claim payout is under $20K. With primary policy limits of $250K–$500K, excess claims triggering umbrella coverage are rare—less than 0.001% of policies see it used.
Insurance companies, like Vegas, don’t publish odds or payout stats. That should say something.
Bottom line: the likelihood of an umbrella claim being filed, litigated, and paid is so small it makes Shark Week look safe by comparison.
4. Don’t Buy Umbrella Insurance from the Same Company as Your Primary Policy
The reason is simple: legal defense. In a lawsuit, having two separate insurance companies means two teams of lawyers. That’s more protection. The company selling both policies may promise convenience, but it reduces your defense strength in court.
So what does he do? He carries both a personal umbrella and a commercial umbrella.
Maybe it’s because he has teenage drivers. Maybe it’s that one rental with questionable tenants. Or maybe it’s simply caution born from decades of experience and a healthy respect for liability.
He’s the first to admit: maybe it’s overkill. But in today’s world, sometimes that’s exactly what rational protection looks like.
Thanks Mark Kohler
Certified as a Tax Advisor By:
Mark Kohler
Mark J. Kohler, senior partner at KKOS Lawyers and co-founder of Directed IRA, has over 25 years of experience helping entrepreneurs achieve financial freedom. Through YouTube, books, and live trainings, he breaks down complex strategies into simple, actionable steps. His Main Street Certified Tax Advisor Program now equips CPAs and agents to share these insights with clients.
