What Is Umbrella Insurance and Do You Need It?

Your home and auto policies cap how much they will pay if you are sued. Umbrella insurance sits on top of those caps and is one of the cheapest forms of protection per dollar of coverage you can buy.

The gap umbrella fills

Say your auto policy covers $300,000 of liability and you cause an accident with $800,000 in injuries and legal costs. You are personally on the hook for the $500,000 difference, which can mean garnished wages and seized assets. Umbrella insurance covers that excess.

How it works

An umbrella policy kicks in once the liability limits on your underlying home or auto policy are exhausted. It is sold in increments of $1 million and covers a broad range of liability: injuries you cause, property damage, and even certain personal-liability claims like libel or slander.

Why it is so cheap

Large liability claims are rare, so insurers can offer big coverage for little money. A $1 million umbrella policy commonly costs $150 to $300 a year, with each additional million costing less than the first. Few other products give you a million dollars of protection for the price of a couple of dinners out.

Who really needs it

The more you have to lose and the more ways you can be sued, the more it matters. Strong candidates include anyone with significant savings or home equity, landlords, families with teen drivers, owners of pools, trampolines, or dogs, and people with a public profile. A good rule of thumb is to carry umbrella coverage at least equal to your net worth.

A prerequisite to know

Insurers usually require you to carry fairly high liability limits on your home and auto policies first (often $250,000 to $300,000) before an umbrella will sit on top. So review those underlying limits at the same time.

Estimate the right amount with our umbrella insurance calculator.