7+ years writing insurance and personal finance content
Contributor to top media, including USA Today
A passionate personal finance advocate, Sarah’s writing has graced the pages of many of the personal finance and insurance industries’ top web publications.
3+ years experience in insurance and personal finance editing
Katie uses her knowledge and expertise as a licensed property and casualty agent in Massachusetts to help readers understand the complexities of insurance shopping.
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Umbrella policies offer protection beyond the liability limits of your auto or homeowners insurance policies. If something happens to max out the liability limits of your auto or home insurance policies, an umbrella policy can pay for your legal costs and judgments made against you. The goal of an umbrella policy is to protect your assets from the unexpected.[1]
Here’s what you need to know about umbrella policies, including average costs and whether you need this type of coverage.
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What an umbrella insurance policy covers
An umbrella policy is a type of supplemental liability coverage that boosts your overall financial protection. Common underlying policies include homeowners and auto insurance. But depending on your situation, an insurer may require other types of underlying policies.
Typically, an umbrella policy can kick in after you reach the liability limit of an underlying policy. After that point, the umbrella policy helps pay for legal fees and claims made against you.
For example, let’s say your child causes unintentional property damage to someone’s home or someone incurs serious injuries at your home. If the legal fees or medical bills exceed the liability limit attached to your homeowners insurance policy, an umbrella policy can kick in to cover the costs beyond your home insurance policy’s liability limit.
Ultimately, this type of policy offers a way to protect your assets against loss. An umbrella policy may also protect you against other types of claims, like slander and libel.[1]
Do you need an umbrella insurance policy?
An umbrella policy acts as another layer of protection for your assets. While a standard homeowners or auto insurance policy will offer some level of liability coverage, the baseline policies might not cover your costs if someone sues you.
Without an umbrella policy, you may have to use your assets to cover the damages assigned in court — especially if your underlying policies have relatively low coverage limits. Depending on your situation and the value of your assets, you might decide you have to sell your home or other high-value property to cover legal costs.
For homeowners with sizable assets, an umbrella policy can prevent that worst-case scenario and help you walk away from a lawsuit with your net worth intact.
Personal umbrella coverage is an especially good idea if you’re at a higher risk of a lawsuit because you host parties with your swimming pool, own rental properties, have a dog, employ household staff, volunteer on a charitable board, or have a teen driver in the household.[2]
The major advantages of an umbrella insurance policy include protection against lawsuits and broader insurance coverage. Umbrella policies can protect you from many unexpected accidents, injuries, or damages.
For example, let’s say you cause a car accident, and the following lawsuit results in you owing $1 million. If your car insurance policy’s liability limit is $500,000, you’ll have to dip into your assets for the rest of the funds in the event of a large liability claim. With an umbrella policy, you can utilize the additional coverage without tapping into your assets.
How much umbrella insurance costs
The cost of an umbrella policy can vary widely based on the insurance company, your geographic location, and the risks associated with your situation. In general, umbrella insurance offers some of the best value for extra liability coverage. As you increase your umbrella policy limits, the cost per $1 million in coverage usually decreases.
Here are the average costs of umbrella policies for people with one home, two cars, and two drivers, according to data published in a white paper from RHSB and ACE Private Risk Services.[3]
Coverage Limit
▲▼
Annual Premium
▲▼
$1 million
$383
$2 million
$474
$5 million
$608
$10 million
$999
Here are the average umbrella insurance costs for high-value homeowners with three homes, four cars, one boat, and three drivers, according to the same study.[3]
As with most insurance policies, insurers consider many factors when determining annual premiums for umbrella coverage. Below are some of the variables that affect the cost of umbrella insurance.
Underlying coverage: Higher liability limits on your underlying policies can lead to lower umbrella insurance rates. For example, a higher liability limit on your auto policy can lead to a lower umbrella insurance premium.
Coverage limit: A higher coverage limit for your umbrella policy correlates with a higher premium.
Location: Where you live can affect the cost of your umbrella policy.
Assets: The number of homes, cars, and boats you own will influence the cost of your policy. Owning more visible assets often leads to a higher premium.
Drivers in the household: Insurers consider the number of drivers in your household and their driving characteristics when determining premiums. A household with teenage drivers and speeding tickets may pay more for an umbrella policy than a single driver with a clean driving record, for instance.
Additional coverage options with umbrella insurance
Most umbrella policies offer additional coverage beyond what a basic auto or homeowners insurance policy covers. This type of insurance often includes protection against libel, slander, and false arrest.
Homeowners seeking to limit their liabilities can find a lot to appreciate about the robust protection of an umbrella insurance policy. If you find yourself facing an unexpected lawsuit, the overarching protection of an umbrella policy can make a world of difference.
Notably, an umbrella policy doesn’t cover everything. Some issues not covered by an umbrella policy include your own injuries, damage to your personal belongings, intentional or criminal acts, and liability tied to written or oral contracts.[4]
Additionally, most insurers require you to purchase specific levels of liability coverage across your other policies before offering an umbrella policy. For example, if you own a boat, you might have to sign up for a boat insurance policy with a substantial amount of insurance before an insurer will finalize your umbrella policy.
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How to purchase an umbrella insurance policy
If you decide to purchase umbrella insurance coverage, follow the steps below.
Assess your coverage needs. Start by determining how much coverage you need for your personal umbrella insurance policy.
Compare quotes. With an idea of the coverage you need in mind, shop around to find the right fit for your situation. Many homeowners opt to bundle their home insurance and umbrella policies with the same insurer. It’s important to shop around for coverage from multiple insurers.
Ask for a discount. If possible, work with an insurance company that provides a discount. Many insurance companies offer bundling and other types of discounts, which can help you earn lower prices.
Read the fine print. Before committing to a policy, read the fine print to confirm you understand what the policy covers. If the policy lacks the key coverage you want, keep shopping. If you want questions about a policy, ask an insurance agent for more specific information.
Umbrella policy FAQs
An umbrella policy can provide more protection for your financial situation. The following information can help answer your remaining questions about umbrella policies.
How much does a $1 million umbrella policy cost?
The exact cost of an umbrella policy with coverage limits of $1 million varies based on your unique situation and the insurer you choose to work with. On average, a $1 million umbrella policy costs $383 per year, according to an ACE Private Risk Services report.
Is an umbrella policy worth having?
It depends. An umbrella insurance policy can provide financial protection and peace of mind, especially if your assets exceed the maximum liability coverage limit on your current insurance policies.
The right amount of coverage in personal liability insurance for you will depend on your coverage needs and assets. If you don’t mind higher risks, then you might skip an umbrella policy.
What are the disadvantages of an umbrella policy?
Umbrella insurance applies after your underlying policy maxes out. It’s an extra level of coverage you might never tap into. Additionally, the policy won’t cover damage to your own home or vehicle.
At what net worth should you have an umbrella policy?
If you have assets, you should consider an umbrella policy. Many people with a high net worth opt to carry excess liability coverage. You should consider your lifestyle risks in addition to your net worth.
For example, if you rent out a property or have a dog, the peace of mind an umbrella policy provides might be worth it. In general, the limits of your umbrella policy should at least equal your net worth.
Sarah Sharkey is a personal finance writer who enjoys helping people make savvy financial decisions. She covered insurance and personal finance topics. You can find her work on Business Insider, Money Under 30, Rocket Mortgage, Bankrate, and more. Connect with her on LinkedIn.
Edited byKatie PowersAuto and Life Insurance Editor
Katie PowersAuto and Life Insurance Editor
Licensed auto and home insurance agent
3+ years experience in insurance and personal finance editing
Katie uses her knowledge and expertise as a licensed property and casualty agent in Massachusetts to help readers understand the complexities of insurance shopping.
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