If you accidentally cause property damage or bodily injury to someone else, your home or auto insurance liability coverage can protect you from the costly fallout. But the cost of damages may exceed your policy’s liability coverage limit. For example, the liability portion of a full-coverage car insurance plan usually tops out at $500,000 or $1 million. Many plans offer far less liability coverage than that, though. State-minimum liability requirements range from around $15,000 to $100,000 at the most.

Although that may seem like a lot of money, one serious accident can push your policy beyond its liability limits. This is where umbrella insurance can be beneficial. Once liability coverage is exhausted from expenses like legal fees and judgments against you, your umbrella policy kicks in to provide extra coverage, usually starting at $1 million. If you don't have umbrella coverage, expect to pay the difference out of your own pocket.

That’s just the tip of the iceberg when it comes to how an umbrella insurance policy can help you in a tough situation. Keep reading to learn more about:

What is an umbrella policy?

An umbrella insurance policy works with a standard home or auto insurance policy to provide extra liability coverage and cover your assets if you're found responsible for property damage or bodily injury.

Basic home and auto insurance policies include bodily injury (BI) and property damage (PD) liability coverages. If something happens and you're found to be liable or at fault for it, that liability coverage protects you up to your policy limits. But if the monetary damages add up to more than your liability coverage limit, umbrella insurance can cover the rest.

Umbrella insurance is an added layer of coverage if you’re liable for damages or injuries and the liability part of your auto, home, renters or boat insurance isn’t enough to cover resulting claims. It also covers claims that some liability policies may not, like false arrest, libel, slander and rental units you own.

What does umbrella insurance cover?

If you’re ever sued for bodily injury or property damage, the liability coverage from your home or auto insurance will cover you up to a point. After that, you’re responsible for all remaining expenses — unless you have umbrella insurance.

Umbrella insurance covers:

  • Slander
  • Libel
  • False arrest, detention or imprisonment
  • Injuries to another party
  • Property damage to another party
  • Legal defense costs

Although your homeowners or car insurance may cover some of these situations, umbrella insurance offers a higher level of coverage and provides additional support to those and similar policies.

Examples of why you may need umbrella insurance

Here are three typical examples of when an umbrella policy could support home and car insurance.

Situation #1

A guest injures themselves at your house and you’re found liable for their medical bills, which add up to $700,000. Your home insurance policy covers the first $300,000, but you’ll have to pay the remaining $400,000 out of pocket — unless you have umbrella insurance.

Situation #2

A dog bites someone at your home, and the injured person sues you. Your homeowners liability coverage pays the resulting legal fees up to the policy limits, then your umbrella insurance covers the rest up to its policy limits.

Situation #3

You're involved in a traffic accident and found to be at fault for it. You need to pay for the other driver’s car damages, injuries and lost wages for the time they’re in the hospital, totaling $600,000. Your auto insurance liability coverage pays the first $400,000, but $200,000 still needs to be paid. If you have an umbrella policy, it will cover that amount.

What is not covered by an umbrella policy?

Umbrella insurance covers a lot of damages and situations, but it doesn’t cover everything. A few examples of what umbrella policies typically don’t cover include:

  • Any unintentional damage you may do to your own property. Your homeowners insurance or the collision and comprehensive coverage portion of your car insurance usually takes care of that.
  • Your own injuries.
  • Intentional or criminal acts.
  • Damage or injuries you cause while using certain vehicles, such as jet skis.

Given the above, make sure you ask about any exclusions before you buy an umbrella insurance policy.

Do I need umbrella insurance?

If you have extensive assets, several properties or a wealth of savings, you should seriously consider umbrella insurance.

You might find the extra level of coverage an umbrella policy provides useful even if you have an average income or assets, however. This is because anyone can get sued, and lawsuits are expensive.

All that said, umbrella insurance isn't required. You might find the relatively low cost of umbrella insurance worth it, though, if you:

  • Are at a higher risk of being sued.
  • Own high-risk items like trampolines, pools and certain dog breeds.
  • Own property (especially multiple properties).
  • Have significant savings, assets or both.

How much umbrella insurance do I need?

Most people find that a $1 million umbrella insurance policy offers plenty of coverage and protection.

However, you may decide you need more than $1 million of umbrella coverage because of your income, assets or some other reason. In that case, contact your insurance company and discuss the best amount for you.

When calculating how much umbrella insurance you should get, consider:

  • Risks you face.
  • The value of your assets.
  • Any possible loss of future income.

How much is an umbrella policy?

Umbrella insurance may cost as little as $150 a year, according to the Insurance Information Institute. You might pay as much as $525 for an umbrella policy, though, if you get more than the minimum $1 million of coverage.

Estimated umbrella insurance costs
Umbrella policy limits Annual cost
$1 million $150 to $300
$2 million $225 to $375
$3 million $275 to $425
$4 million $325 to $475
$5 million $375 to $525
Source: Insurance Information Institute

Umbrella policies are some of the cheapest insurance products around, especially given the high level of coverage they offer.

Is an umbrella policy worth it? 

You are more likely to find umbrella insurance worth it if you have a lot of assets, earn a lot of money or own a lot of property.

You may still find umbrella coverage worth it in other situations, though, so don’t ignore it just because you don’t fit into one of the categories above.

How do I get umbrella insurance?

Most major insurance companies offer umbrella coverage, but they usually require you to have liability coverage through them as well. That can come in the form of an auto, home, renters or even boat policy.

Depending on the provider, you’ll typically need to carry at least the following amounts of liability coverage before you can add an umbrella policy:

  • Homeowners insurance coverage of $300,000
  • Auto insurance coverage of $250,000

Also, different insurers offer different umbrella policy coverage limits. Some cap umbrella coverage at $5 million, while others go up to $10 million.

Certain insurance companies may refuse to sell you umbrella coverage if you enjoy risky hobbies, like jet skiing.

Not sure where to buy an umbrella policy? Compare quotes from multiple companies. That’s how to get the best umbrella insurance for your best rate.

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