Umbrella insurance is a form of personal liability coverage designed to be added on top of any existing liability coverage you already have. It goes beyond the limitations of your standard coverage, protecting your assets in case you are held liable for damages from a lawsuit.
Offered by most auto and homeowners insurance companies, umbrella liability insurance is typically bundled with other policies you own. Here’s a look at how umbrella insurance works, who needs it and how much you can expect to pay.
How does umbrella insurance work?
An umbrella liability policy works in two important ways.
- It offers financial protection on top of, and beyond, the monetary limits of your existing liability coverage.
- It expands the limitations of existing coverage, protecting you from situations that might be excluded from other policies.
A personal umbrella policy (PUP), also known as lawsuit coverage, is an optional form of insurance that’s tied to other coverages you already own, such as your auto, home, renters or boat policies. It’s designed to pay out once you’ve exhausted the limits of those other policies, helping protect your assets from unexpected costs if you’re deemed liable for property damages, bodily injuries or other liability losses.
So, if you are sued by someone who is injured in your home and your homeowners insurance policy limits aren’t enough, umbrella coverage can step in to cover the difference. Umbrella coverage can also be used to help cover legal expenses related to a liability claim against you.
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What does umbrella insurance cover?
Umbrella insurance activates in situations where the policyholder and other covered individuals are deemed liable for someone else’s losses once other underlying policy limits are exhausted. Umbrella coverage kicks in to cover things like:
- Bodily injuries.
- Property damages.
- Personal damages to others, such as defamation, libel or slander.
- Personal damages of covered individuals, such as false arrest.
- Select instances of landlord liability.
Say a driver causes an at-fault accident that involves two other vehicles, causing multiple injuries and totaling several cars. The driver’s auto policy liability limits are well above the state minimum requirements, though it’s still not enough to make everyone whole.
If they also have umbrella insurance, the at-fault driver’s auto policy’s bodily injury liability and property damage liability limits will pay out first to cover eligible injuries and property damages. Once those limits are reached, umbrella policy protection will kick in to cover the rest, up to its own coverage limit.
What isn’t covered by umbrella insurance?
While an umbrella policy can be a good shield against liability, it doesn’t cover everything. Some common exclusions include:
- Your own injuries.
- Damage to your personal property.
- Business activity, particularly when it comes to defamation, libel and slander coverage.
- Intentional acts.
- Contractual agreements, particularly if you agreed to certain terms and risks.
It’s important to read policy documents carefully to understand liability limits, exclusions and other coverage limitations.
Who needs umbrella insurance?
No matter how careful you are at home or behind the wheel, unexpected accidents can happen. For this reason, umbrella coverage is a good idea for many people — especially those with financial interests to protect — but it isn’t necessary for everyone.
Do you need to buy umbrella coverage along with your homeowners and/or auto insurance? Maybe. Umbrella insurance may be a good purchase if you:
- Have significant assets, savings, etc. that you want to protect from liability.
- Have teenagers in the home, especially if those teen drivers are on your auto policy.
- Own rental or vacation property.
- Frequently host parties.
- Invite company over to swim in your pool, jump on your trampoline, etc.
- Have a public-facing career.
- Enjoy high-risk hobbies.
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How much umbrella insurance do I need?
While it varies by insurer, many umbrella insurance policies start with around $1 million in coverage. Beyond that, how much you need to purchase depends on the assets you want to protect, your individual risk exposure and how much protection you already have from your existing policies.
To determine the right amount of umbrella coverage for you, first calculate the value of your assets. This might include vacation or rental property you own, your investments, savings accounts and more. Then, subtract the existing liability coverage provided by your home, auto or other insurance policies.
Be sure to consider any required underlying limits. Many insurers require you to hold a certain level of liability coverage with your auto and home insurance policies (sometimes the maximum limits they sell), so you may need to bump those limits up if you don’t already have enough liability coverage. You may have to purchase your umbrella policy from the same auto and/or home insurer you max out those liability limits with, though some carriers and specialty insurers offer standalone umbrella policies.
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How much does umbrella insurance cost?
Umbrella insurance coverage is designed to be an added safety net, not primary liability coverage. For this reason it’s generally very affordable, especially compared to auto and home insurance premiums. You can usually buy $1 million or more in umbrella coverage for just a few hundred dollars per year.
Your individual premium depends on many factors.
- How much coverage you buy.
- Your history of liability claims.
- Any existing coverages and their limits.
- High-risk activities, hobbies or careers for you or members of your household.
- Property risk factors, such as a trampoline or pool at your home.
FAQs
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Is umbrella insurance required?
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Can I get umbrella coverage without auto or homeowners insurance?
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Can I buy umbrella insurance from any insurer?
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What happens to my umbrella coverage if I let the underlying policy lapse?
Stephanie Colestock is a seasoned writer specializing in personal finance. With over 14 years of experience, she crafts insightful and accessible content on a wide range of financial topics, including insurance, credit and debt management, banking, investing, retirement planning, and household finances.
Her bylines appear in top-tier publications such as TIME, Fortune, MSN, Forbes, USA Today, Money, Fox Business, and CBS. Stephanie’s deep understanding of complex financial concepts and her ability to communicate them clearly have made her a trusted voice in the industry.
When she’s not writing, Stephanie enjoys helping individuals make smarter financial decisions through her engaging and well-researched articles.
Lacie Glover is a Lead Writer and Editor with sixteen years’ experience in the insurance category. Prior to Jerry, she spent more than a decade on NerdWallet’s content team writing, editing and then overseeing the auto insurance category, as well as dabbling in other insurance and automotive topics. Prior to her career in the online personal finance content space, Lacie spent time in the hard sciences, in clinical research and chemistry labs. She has a bachelor’s degree from Colorado State University.
