Size the umbrella to what a judgment could take.

The facts, in one place.

Six quotable sentences on sizing an umbrella policy.

1. An umbrella policy sits above the liability limits on the auto and home policies and pays a judgment those limits do not reach, plus the cost of defending the suit. It is sold in steps of a million, and the question is how many.
2. What a judgment can reach is the measure. It is net worth outside retirement accounts, since ERISA plans and, in Illinois, IRAs are largely protected from judgment creditors, plus a share of future earnings, since Illinois caps wage garnishment at 15 percent of gross wages.
3. Example: $1,500,000 of home equity, investments, and savings, $800,000 in retirement accounts left out, and $150,000 a year for 20 more years, of which 15 percent is reachable and worth about $305,782 today. The exposure is about $1,805,782, the auto and home policies cover $300,000, and the gap rounds up to a $2 million umbrella.
4. The future income is a present value: the reachable slice of each year's pay, discounted back to today, so a long career ahead adds more than a short one and a higher discount rate adds less.
5. The arithmetic sizes the coverage; it does not price it. The insurer decides what it will write and at what premium, and it will want the underlying limits raised to a floor before it writes anything.
6. What the arithmetic leaves out pushes the answer up, never down: teen drivers, a pool, a dog, a rental property, a boat, or a seat on a board each raise the chance of the suit, and an agent adds a million for them, not a formula.

By net worth.

How the recommendation steps up with net worth.

How the sizing works.

A personal umbrella is excess liability coverage: it pays a judgment or settlement above the liability limits on the underlying auto and homeowners policies, and it pays the cost of defense, which the underlying policies exhaust with their limits. The measure of how much to carry is what a judgment could collect. Net worth outside retirement accounts is the first part, because ERISA-governed plans are protected from creditors by federal law and Illinois extends a like protection to IRAs (735 ILCS 5/12-1006); the tool states that and does not compute the exemptions, so a reader who would rather assume nothing is protected can count the accounts anyway. Future earnings are the second part. Illinois limits wage garnishment to 15 percent of gross wages (735 ILCS 5/12-803), a smaller share than the 25 percent federal ceiling most states follow, and the tool takes that share of each remaining working year's pay and discounts it to today as an ordinary annuity.

The sum is the exposure; less the underlying limits, it is the gap; the gap rounded up to the next $1 million step, and never below $1 million when there is any gap, is the recommendation. That is sizing, not a quote. The insurer sets what it will write, usually requires the underlying limits raised to a floor of its own before it attaches, and prices by the risk factors the arithmetic does not see: young drivers, a pool, a dog, rental property, watercraft, board service. Each pushes the answer up. Above $10 million the standard market thins and the tool says so.

Methodology.

1. Inputs. Net worth outside retirement accounts; retirement accounts and whether to count them; yearly income and working years left; the share of pay a court could reach (default 15%, the Illinois garnishment cap); a discount rate (default 4%); and the liability limit on the auto and home policies.
2. Exposed net worth. The net worth outside retirement accounts, plus the retirement accounts when counted.
3. Exposed future income. The reachable share times the yearly income, times the ordinary-annuity factor for the years at the discount rate; the share times income times years when the rate is zero.
4. The gap and the size. The exposure less the underlying limit, never below zero; rounded up to the next $1 million step, at least $1 million when the gap is positive, and capped at $10 million with a flag when the gap runs past it.
5. Validation. Zero income leaves the exposure equal to the non-exempt net worth; counting retirement accounts adds them; the annuity factor at 4 percent for 20 years (13.5903) is pinned; a gap of exactly two million rounds to two million and a dollar more to three; a small gap calls for the minimum and no gap calls for none; a very large gap is capped and flagged. A transcription error fails the build.
6. Not modeled. The homestead and retirement-account exemptions themselves, the defense costs the umbrella pays, the insurer's underlying-limit requirements and pricing, the risk factors that make a suit more likely, and any coverage for a business or a board seat, which is a separate policy. Hypothetical throughout. Educational, not advice.

Revision history.

The property and casualty tools' history.

September 7, 2026

First release of three property-and-casualty assumption tools: how much umbrella coverage (non-exempt net worth plus the present value of the reachable share of future income, less the underlying auto and home limits, rounded up to the next million), the coinsurance rule (required coverage as the policy's share of rebuild cost, the claim paid in proportion when coverage falls short, less the deductible and capped at the limit), and raise the deductible (premium saving against the extra out of pocket per claim, the break-even claim frequency, and the position over the years with none, one, and two claims).

Canonical address: https://consideratecapital.com/tools/how-much-umbrella-coverage