Umbrella Insurance Policy: What It Is and How It Protects You
An umbrella policy provides coverage beyond the limits of standard liability policies. Not every homeowner needs umbrella insurance, and it’s best suited for people with significant assets.
Michelle Lambright BlackInsurance, Personal Finance Writer
24+ years in personal finance writing
Plutus award winner
Michelle Lambright Black is a credit expert, freelance writer, and founder of CreditWriter.com. She has over 20 years of experience writing and speaking about credit and money. As an Insurify contributor, she focuses on helping families and small business owners make smart, informed decisions about their insurance coverages.
Michelle's work has appeared in publications such as Yahoo! Finance, Reader's Digest, Parents, FICO, Forbes, Bankrate, The Seattle Times, MarketWatch, BuySide from Wall Street Journal, USA Today, and more. She's also a three-time finalist for the best personal finance freelancer award from the Plutus Foundation. When she isn't writing or speaking about credit and money, Michelle loves to travel with her family or read a good book. You can connect with Michelle on Instagram or Twitter.
Michelle has been a contributor at Insurify since September 2023.
Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.
Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.
MacKenzie Korris is an insurance copy editor with a producer’s license for property and casualty insurance in Missouri.
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An umbrella insurance policy gives you extra liability protection when other insurance policies reach their coverage limits. It works alongside your homeowners insurance, renters insurance, or car insurance to help cover large liability claims.[1]Serious damage or accidents can quickly get expensive. A car accident that causes severe injuries, a guest who slips on your property, or a lawsuit over defamation of character could lead to medical bills and legal costs that exceed your standard insurance limits. Umbrella insurance can help protect savings, home equity, and future income from these risks.
Here’s what you should know about an umbrella policy, who needs it, how much it costs, and how to decide whether this type of extra protection makes sense for you.
What is an umbrella policy?
An umbrella policy is a type of excess liability insurance that provides coverage beyond your existing insurance policy. It doesn’t replace the homeowners insurance, renters insurance, or car insurance policy you already have in place. Instead, umbrella insurance coverage supplements the liability insurance you already have with extra protection.
For example, suppose your homeowners policy includes $300,000 in personal liability coverage, but a serious injury on your property leads to a lawsuit and $750,000 in damages. Your homeowners insurance would pay the first $300,000 in damages. If you had an umbrella policy, it might offer you additional coverage for some or all of the remaining $450,000 in damages, depending on the circumstances and your policy limits.
Umbrella policies also expand coverage in certain situations. Many policies include personal liability protection for claims such as personal injury, slander, or libel that standard home insurance may not fully cover.
Coverage amounts on personal umbrella insurance policies vary. Some insurance companies start umbrella insurance coverage at $1 million and increase in $1 million increments. This added protection could help shield your assets and future earnings from large liability claims.[2]
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What an umbrella policy covers
Umbrella insurance coverage focuses on liability rather than damage to your own property. It’s also important to understand that this type of liability protection applies only after your underlying coverages reach their policy limits.[3]
Coverage Type
Covered by Umbrella Policy?
Example Scenario
Bodily injury liability
Yes
An auto accident causes severe injuries with medical bills beyond auto policy limits.
Property damage liability
Yes
You cause major property damage to someone else’s home.
Personal injury liability
Yes
Someone sues you over defamation of character or invasion of privacy.
Medical bills for others
Yes
A guest suffers injuries on your property.
Damage to your own property
No
You’re at fault in an accident and need to pay to repair your car.
What umbrella insurance doesn’t cover
Like any insurance policy, umbrella insurance coverage comes with exclusions. As a policyholder, it’s important to understand that personal umbrella insurance doesn’t cover the following:
Damage to your property: Umbrella insurance doesn’t cover any repairs to your home, car, or personal property.
Your own injuries: An umbrella policy won’t help pay your personal medical bills after an accident.
Business-related liability: Claims tied to a business usually require separate liability insurance, unless you add an endorsement.
Intentional or criminal acts: Umbrella insurance coverage doesn’t protect you in the event of deliberate harm or illegal activity.
As with any insurance coverage, it’s important to review policy exclusions before buying an umbrella insurance policy.
Who needs an umbrella policy?
An umbrella policy typically works best for people with higher liability exposure. Lawsuits often target not only current income, but future assets, including earnings and savings.You may need umbrella insurance if you have any of the following:
Significant savings or home equity
High income or future earning potential
Rental properties or a condo you lease to others
Teen drivers on your auto insurance
Pools, trampolines, boats, or certain dog breeds
Even renters can benefit from a personal umbrella policy, especially if they face higher liability risks. Umbrella insurance can offer peace of mind when standard liability coverage may not be enough.
How much umbrella insurance costs
Umbrella insurance premiums can vary widely depending on details like your location, number of properties insured, number of vehicles, number of drivers, and more. Annual umbrella policy premiums often fall within the ranges below, according to insurance brokerage firm RHSB and ACE Private Risk Service.[4]
Coverage Amount
Average Annual Premium
$1 million
$383–$563
$2 million
$474–$713
$5 million
$608–$933
$10 million
$999–$1,578
Umbrella insurance coverage typically costs less because it covers low-frequency, high-cost events. Additionally, pricing for umbrella insurance depends on several factors, including:
Coverage amount
Driving history
Number of properties or vehicles
Risk factors (pools, rental properties, dogs, teen drivers)
How an umbrella policy works with auto and home insurance
In general, insurance companies will require you to carry a minimum amount of liability insurance on your policies before they’ll issue an additional umbrella insurance policy. These requirements help reduce insurers’ overall risk.
Homeowners insurance personal liability limits of at least $300,000
Once a claim exceeds the liability insurance limits on your policy, umbrella insurance steps in to provide additional coverage.
How insurers pay claims across auto, home, and umbrella policies
When a serious accident leads to a large liability claim involving an umbrella policy, insurance coverage pays out in layers. Each policy steps in at a specific point, based on coverage limits.Here’s an example of how the process typically works after a major car accident:
Your auto insurance policy pays first. Suppose you cause a car accident that results in $1.2 million in bodily injury and property damage claims. If your auto insurance policy includes $500,000 in liability coverage, it pays that amount first.
Umbrella insurance kicks in next. After your auto insurance policy reaches its limit, your umbrella policy covers the remaining $700,000 as long as there aren’t any exclusions that disqualify coverage and the damages fall within the umbrella policy limits.
You usually file one claim. If you carry an umbrella policy and liability insurance from the same insurance company, you typically won’t need to manage multiple claims on your own. Instead, your insurer should coordinate payment between policies behind the scenes. But it’s always a good idea to keep good records and follow up on the claims process.
The payout stops at policy limits. If damages exceed both policies, you may be responsible for additional out-of-pocket costs.
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How to buy an umbrella policy
If you decide an umbrella insurance policy is right for you, follow these steps to buy coverage:
1. Review your current auto and home liability limits
To start, check the coverage amounts on your current auto insurance and homeowners insurance policies.
2. Increase your limits if necessary
Check whether your insurance company requires higher underlying coverage to qualify for umbrella insurance, and choose the limits for your underlying policies accordingly.
3. Decide how much umbrella coverage you need
It’s important to buy an umbrella insurance policy that offers enough coverage to protect your assets, income, and risk exposure.
4. Compare quotes
You may be able to get a bundle discount if you combine your umbrella policy with your home and auto insurance, and some insurers may require you to carry coverage under the same policy. Still, it’s smart to shop around for multiple insurance quotes to find the best price.
Umbrella policy FAQs
Umbrella insurance can be a vital coverage for some homeowners. These answers to common questions can help clarify how it works.
Is umbrella insurance the same as excess liability insurance?
Excess liability coverage typically expands a single liability insurance policy. Umbrella insurance, by comparison, provides excess liability coverage for several liability insurance policies at once. Some people may use the terms interchangeably.
Is umbrella insurance worth it?
It might be. It depends on your personal profile and risk factors. Umbrella insurance can provide millions of dollars in extra coverage. This type of insurance can provide extra financial protection for a relatively low annual cost, making it worthwhile for people with higher assets or higher liability exposure.
Does umbrella insurance cover car accidents?
Yes. Umbrella insurance can cover bodily injury and property damage from a car accident after your auto insurance policy reaches its limits.
How much umbrella insurance do you need?
It depends. Coverage often starts at around $1 million. Advisers often recommend purchasing enough coverage to protect assets and future income.
Does umbrella insurance cover rental properties?
It’s possible. You can purchase umbrella insurance to cover liability tied to rental properties. But the rental property needs to be listed on your home insurance or landlord policy and supported by the required underlying insurance.
Does umbrella insurance cover slander or libel online?
It’s possible. Umbrella policies may include personal injury coverage for slander or libel, but coverage varies by insurance company, so it’s worth reading the terms or talking to an agent.
Methodology
Insurify data scientists analyzed rates from more than 180 home insurance companies sourced directly from Insurify’s partner companies and Quadrant Information Services. Rates span all 50 states and Washington, D.C., and quote averages represent the mean price for a given coverage level and geographic area. To ensure data reliability, only insurers meeting minimum quote thresholds were included in the analysis.
Unless otherwise specified, quoted rates reflect the average cost for homeowners with no prior claims and good credit with a home construction year of 1980. The default coverage assumptions include:
Default Coverage Assumptions
Dwelling coverage: $300,000
Deductible: $1,000
Personal property limit: $25,000
Liability limit: $300,000
Additional data points beyond these default values are sourced from Insurify’s proprietary database. Rates are updated monthly.
Michelle Lambright BlackInsurance, Personal Finance Writer
24+ years in personal finance writing
Plutus award winner
Michelle Lambright Black is a credit expert, freelance writer, and founder of CreditWriter.com. She has over 20 years of experience writing and speaking about credit and money. As an Insurify contributor, she focuses on helping families and small business owners make smart, informed decisions about their insurance coverages.
Michelle's work has appeared in publications such as Yahoo! Finance, Reader's Digest, Parents, FICO, Forbes, Bankrate, The Seattle Times, MarketWatch, BuySide from Wall Street Journal, USA Today, and more. She's also a three-time finalist for the best personal finance freelancer award from the Plutus Foundation. When she isn't writing or speaking about credit and money, Michelle loves to travel with her family or read a good book. You can connect with Michelle on Instagram or Twitter.
Michelle has been a contributor at Insurify since September 2023.
Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.
Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.
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