Umbrella insurance is a liability insurance policy that provides extended coverage above and beyond your home and auto insurance policy if you’re responsible for injuries or damage to someone else. It will kick in when the underlying policy’s limits are exceeded and even covers some things auto and home liability don’t.
Last updated: Aug 21, 2024 Compare quotes in less than 5 minutes
Written by Sarah Sharkey
Contributing ResearcherSarah Sharkey is a personal finance writer with a master’s degree in management from the Hough School of Business at the University of Florida. She enjoys helping readers find money solutions that work. She has written for numerous personal-finance publications including Money Under 30 and The College Investor.
Reviewed by Leslie Kasperowicz
Leslie Kasperowicz is an insurance expert with four years of direct agency experience and over a decade of creating educational content to help insurance shoppers make confident, informed decisions.
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You need enough umbrella insurance to protect your assets, including your home, savings and investments that could be at risk if there's a judgment against you. Umbrella insurance coverage starts at $1 million.
An umbrella policy extends above your standard homeowners liability and auto liability policies, giving you a higher total coverage limit than any of those policies offer. If the amount of coverage on those policies isn't enough to protect your assets, you need an umbrella policy.
Below, we’ll tell you how to find out if you need umbrella insurance and, if so, how much to buy using our umbrella insurance calculator.
You need enough umbrella insurance to protect your assets and future income if you're sued. Umbrella insurance policies usually start at $1 million in coverage, but insurance companies offer these policies in increments up to $5 million and sometimes even $100 million.
You may not think you have enough assets to require umbrella insurance, but it's easy to underestimate what you stand to lose.
"The important thing to realize is that you don't need $1 million in assets to need that much coverage," says Ben Schaum, an underwriting process manager for Progressive Insurance. "The amount of coverage depends more on your personal comfort level and where you are in life."
Umbrella policy limits influence the amount of coverage needed because the limits of your underlying home and auto policies are crucial for determining the premiums of umbrella coverage. Higher policy limits can result in increased premiums based on various risk factors. How much coverage you need depends on your particular situation.
The umbrella insurance calculator below can help you estimate the costs associated with umbrella insurance. It can help you assess your additional coverage needs and costs.
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Umbrella insurance is a type of personal liability insurance that provides additional protection beyond the standard limits of your auto and homeowners policies. It protects your assets in case of a lawsuit or claim against you. This coverage typically extends the liability limits on the policies you already have, such as auto or home insurance. Essentially, it protects you, ensuring that you are covered for significant claims exceeding your existing policies' limits.
Whether you need umbrella coverage or not depends upon the answers to two main questions:
The homeowners insurance liability limit, also known as Coverage E or personal liability limit, plays a crucial role in determining the need for umbrella insurance. Ensuring sufficient coverage in your homeowners insurance is essential before considering an umbrella policy.
Umbrella insurance works by providing extended coverage once your underlying liability limits (on your home and auto policies) are tapped out. So, before buying an umbrella policy, increase your coverage to the maximum limits on both policies. If that's still not enough coverage, it's time to look at an umbrella policy.
Our auto insurance coverage calculator can help with a recommendation for auto insurance coverage. But that's just a start. Many people underestimate what they have to lose and how much coverage they have.
Before buying an umbrella policy, get to know what umbrella insurance covers.
Next, consider the pros and cons of umbrella insurance and ask yourself the following questions.
"Net worth" equals what you own minus what you owe.
So, your net worth is your assets (what you own) minus your liabilities (what you owe).
Basing your umbrella limit off of your net worth is the most common method.
For example, let’s say that your assets total $1,000,000 and your liabilities total $100,000. So, you’d have a net worth of $900,000. This information could help you decide to get umbrella coverage for up to $900,000.
The amount of your personal umbrella policy should exceed your net worth. You may not need an umbrella policy if your net worth is less than your current liability coverage.
You can choose to set your umbrella limit based on your total assets. That gives you more protection than basing it on your net worth.
Some experts recommend coverage equal to the value of your assets without regard for your debts. This could help you avoid selling your home to pay a judgment if your net worth is your home equity.
If you apply this to the example above, you'd want at least $1,000,000 of liability insurance because the assets total $1,000,000. You may need an umbrella policy if your insurer's basic liability coverage limit is less than $1,000,000.
If someone sues you and gets a judgment that exceeds your liability coverage, your future earnings may also be on the line and could be garnished up to 25%.
To address this, consider multiplying your income by five and adding that amount to your asset total. If your total household earnings are $100,000 a year, and you have $500,000 in assets to protect, you may want a $1 million policy.
Another facet of this examination is the potential damage to others.
If you've got two teens entering college, plan to retire soon, or are supporting aging relatives, a financial wipeout could be catastrophic and possibly permanent. That's another indication you might need to expand your liability insurance with an umbrella policy.
When deciding on umbrella coverage, you'll need to review your lifestyle, assets, and what you have to lose.
Chubb, a top-rated insurance company catering to the high-income market, offers a checklist for determining your need for umbrella insurance.
Consider the following points:
How much umbrella insurance costs depends on a few factors.
But, as a general rule, extended liability coverage is affordable. A $1 million policy costs about $240 a year (or $20 a month), according to Erie Insurance. This will vary by company and your personal risk factors. The umbrella insurance cost can also depend on the number of homes, cars, and drivers you have. For instance, having young drivers or a poor credit history can increase the cost. Despite these variations, many find the value of umbrella insurance to be worth the expense.
However, if you carry the bare minimum auto and home liability insurance, you can't add a million dollars of umbrella coverage. Insurers won't let you buy umbrella coverage until you have a substantial amount of liability coverage on your auto and homeowners policies.
A company will likely mandate minimum liability coverage of $300,000 (or even $500,000) for homeowners and $250,000 per person/$500,000 per accident for bodily injury for auto before they let you add a personal umbrella policy. That will increase your home and auto insurance rates.
You can buy umbrella insurance with almost any major insurance company. In some cases, you will need to have your home or auto insurance policy with the insurance company before they write you an umbrella policy.
To buy umbrella insurance coverage:
Adding umbrella liability insurance will increase your insurance bill. However, there are ways to limit the expense.
Some insurers may give you a better rate on your basic liability policies if you add umbrella insurance. It pays to shop the entire package. However, the biggest expense involving umbrella coverage may be the cost of failing to protect yourself with this relatively inexpensive insurance.
Whether umbrella insurance is worth it depends on your circumstances and risk factors. If you have significant assets, such as high net worth, or engage in activities that increase your liability risk, umbrella insurance may be a wise investment.
For instance, if you own a home, have a swimming pool, or frequently entertain guests, your risk of facing a lawsuit is higher. On the other hand, if you have minimal assets and low-risk factors, you may not need umbrella insurance. It’s essential to assess your risk factors and consider your financial situation before deciding whether umbrella insurance is right for you.
Is umbrella the same as an excess insurance policy? Not quite. An umbrella policy provides additional coverage over the underlying liability limits. Typically, these policies can include coverage against events not included in the underlying policy. But excess insurance provides more coverage for specific events. With more limitations, excess liability insurance protects against specific situations.
Most major insurers offer umbrella insurance coverage. We spend a lot of time researching the best auto insurance and home insurance companies so you don't have to.
Ask your current provider about umbrella options or shop around with some of the best insurance companies to see what they can offer. Companies like Travelers, Liberty Mutual, and Chubb are known for high umbrella coverage limits. What defines best is different for different people, depending on their needs.
Standalone umbrella insurance refers to companies like Auto-Owners and RLI that will sell umbrella policies without requiring the underlying home or auto policies to be written with them. All umbrella insurance is a standalone policy in the sense that it's a separate policy and not an endorsement or rider.
Drop-down coverage indicates that an umbrella policy will step in to cover relevant expenses when the original liability policy reaches its maximum.
Based on a rate of $240 (from Erie insurance) for $1 million, you can expect to pay anywhere from $50 to $100 for each additional million, giving a range of $320-$640 for a $5 million umbrella policy.
Yes, umbrella insurance is always purchased separately. But you’ll need underlying homeowners and auto insurance with substantial coverage limits.
