An umbrella insurance policy protects against auto and home accidents, property damage, lawsuits, libel and slander. This policy will go into effect once your underlying policy coverage is exhausted.
“Like all insurance, a good umbrella policy helps you sleep a bit better at night. Umbrella policies protect your assets and net worth if and when any large, unexpected, financially significant claims or lawsuits are made against you,” says Eric Young, senior economics instructor at Loyola Marymount University in Los Angeles.
Learn more about umbrella insurance, including how it works, what it covers, how much it costs and what you should consider before purchasing it.
- Umbrella insurance provides extra coverage when your needs extend beyond your underlying home and auto coverage limits.
- An umbrella insurance policy covers lawsuits and personal liability situations, even when you’re at fault. It doesn’t cover business losses, contracts, intentional criminal acts, omissions or personal belongings.
- Umbrella insurance policies average $200-380 annually for $1-5 million in coverage. The level of personal risk also determines costs.
What is umbrella insurance?
Umbrella insurance is additional protection for you, your assets and your savings. There are limitations to your home and auto insurance coverage policies, and while they will pay up to a certain amount, some situations may require additional funds. For example, an umbrella insurance policy can help cover expenses beyond your car insurance policy limitations if you’re sued after a car accident.
Most umbrella insurance companies will require that you have about $250,000 of auto liability insurance and a $300,000 homeowners liability policy before they provide you with an additional $1 million in coverage.
Calculator: Do I need umbrella insurance?
How does umbrella insurance work?
An umbrella insurance policy typically kicks in when you’ve exhausted your liability coverage or are involved in a situation excluded from your standard coverage, such as false arrest, libel, slander or rental property liability coverage.
Example:To better understand how umbrella insurance works, consider this example:
Your 18-year-old son was driving your car to the store with his friend when he lost control and struck a tree. His friend sustained injuries during the accident, underwent two surgeries and spent three weeks in the hospital.
The total cost for damages and injuries is $400,000 – $100,000 more than the $300,000 bodily injury liability coverage on your teen’s insurance policy. You are now responsible for the remaining balance. However, if you had umbrella insurance, the additional costs would be paid through your umbrella liability policy.
Guide to the best umbrella insurance companies
What umbrella insurance covers
Unexpected expenses are a part of life. Purchasing a home, auto or renters insurance policy provides coverage when specific situations arise — but it doesn’t cover everything. This is where personal umbrella insurance could be a wise investment.
“People should consider an umbrella insurance policy if they have a lot of assets — a net worth of $500,000 and up — a high future earning potential, and/or if their professional or personal activities subject them to a high chance of being sued,” Young says. “This last category could include those who earn income as landlords, serve on boards, coach or volunteer in the local community, have young drivers in the home, write product or business reviews online, drive a luxury vehicle, or otherwise demonstrate wealth and status.”
In general, umbrella insurance provides personal liability coverage for the following:
- Injuries: Bodily injuries sustained by another person during an accident and medical costs, such as an at-fault auto accident, a guest falling in your home or a dog bite incident on your property.
- Property damage: Damages to another person’s property or your own, such as high accident costs or those beyond your homeowners insurance coverage.
- Lawsuits: These involve attorney fees and incidents, including wrongful eviction, libel, slander, false arrest or imprisonment, such as a student making false claims about a teacher online.
Overall, umbrella insurance protects from large liability claims or judgments when your other insurance policies’ limits have been met. However, umbrella insurance has some limitations.
What is not covered by an umbrella policy
While your umbrella policy protects high-cost and personal liability situations, it does have some specific limitations. In general, it doesn’t cover personal damage to you, your car or your home, won’t meet the needs of your business incidents and won’t protect against a breach of contract.
The following scenarios are examples of what your umbrella policy doesn’t cover:
- Business losses: A personal umbrella policy doesn’t typically cover business-related liabilities. For example, while operating your home daycare, a child topples over in a high chair, striking their head on the tile floor and experiencing significant head trauma. The child’s parents sue you, but lawsuit protection is unavailable because you have a personal umbrella policy. However, you may have received a different outcome if you had coverage under a business umbrella policy.
- Contracts: An umbrella policy won’t protect you from a breach in oral or written contracts you’ve entered into. For example, he doesn’t finish the project after hiring and paying a contractor to complete a kitchen rebuild in your home, leaving your home damaged. He won’t return your calls or the remainder of your retainer.
- Intentional criminal acts or omissions: While lawsuits are typically covered under an umbrella policy if you intentionally commit a crime or withhold information, your policy will not cover you. For example, after arguing with your neighbor about a shared fence, you harass him daily and eventually damage his property out of anger. Your umbrella policy would not cover legal fees because of intentional actions.
- Personal belonging: One of the key benefits of personal umbrella insurance is its coverage of damage to other people’s belongings. Unfortunately, it doesn’t extend to damage to your belongings.
It’s also important to note that umbrella insurance excludes anything from your primary home or auto liability insurance policy.
Learn more: Is an umbrella policy a waste of money
Final thoughts: Umbrella insurance
You can purchase standalone umbrella insurance with a company other than your home and auto insurers. When shopping around for quotes with insurance agencies, inquire about purchasing a standalone umbrella policy and how it will work with your established policies.
Resources & Methodology
Sources
- Allstate. “How much does umbrella insurance cost?.” Accessed April 2023.
- Gallen Insurance. “10 actual claims on a personal umbrella policy.” Accessed April 2023.
- Geico. “Geico umbrella insurance.” Accessed June 2023.
- Insurance Information Institute. “Should I purchase an umbrella liability policy?” Accessed April April 2023.
- Insurance Information Institute. “What is an umbrella liability policy?” Accessed April 2023.
- Liberty Mutual. “Liberty Mutual umbrella insurance?” Accessed June 2023.
- Progressive. “Progressive umbrella insurance.” Accessed June 2023.
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