An umbrella insurance policy provides additional coverage outside the existing limits of other policies, like car insurance and homeowners insurance. It offers protection for a number of situations; For example, if you're sued for libel, get into a car accident abroad, or if your dog causes harm to a guest, umbrella insurance can help further protect your assets if these claims aren't covered by existing liability policies.
Umbrella coverage kicks in when the underlying liability limit of an insurance policy is reached, and it's usually sold in increments of $1 million, up to $5 million. The cost of umbrella insurance can range anywhere from $200 on the low end to over $1,000 for a high limit, according to Trusted Choice, with an average cost of about $380 per year providing $1 to $2 million of protection. However, how much you'll pay for umbrella insurance depends on several factors, like where you live, how much coverage you buy and your risk profile.
Use this calculator to assess how much umbrella insurance coverage you need.
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What does umbrella insurance cover?
Most umbrella insurance policies offer coverage for the following:
- Bodily injury: Umbrella insurance can help cover the cost of medical bills and/or liability claims for injuries to another person, whether it's from an at-fault auto accident or an accident in your home (guest falling, dog bite, etc.).
- Property damage: Umbrella insurance can help cover loss or damage you cause to another's property if the damage exceeds your underlying policy limits.
- Lawsuits: If you are involved in a lawsuit for slander, libel, defamation of character and/or other personal attacks, umbrella insurance can provide coverage for legal expenses.
- Landlord liability: If you own a rental unit, umbrella insurance can help cover liability claims you may experience as a landlord, such as if a tenant trips on the property, gets injured and sues. If your landlord policy reaches it's limit, umbrella insurance can provide additional coverage.
Buying an umbrella insurance policy
Before you can purchase an umbrella insurance policy, most insurers will require you to have around $250,000 of liability insurance on your auto policy and $300,000 of liability insurance on your homeowners policy, says the Insurance Information Institute (III).
If you buy your home and auto insurance from the same insurer, you'll typically get a discount of 10% to 15% on your annual premiums, and you may get an additional discount on the umbrella policy as well. You can offset at least some of the umbrella premium by taking larger deductibles on your auto and home insurance policies.
With a single insurer, your coverage is less likely to fall through the cracks if the requirements for the umbrella policy change. And if you're sued, you'll have one set of defense lawyers for the entire case. Otherwise, agents advise you to buy the umbrella policy from your auto insurer because most large lawsuits involve auto accidents.
If your current home or auto insurer won’t sell you an umbrella policy — because your dog's breed is classified as potentially dangerous — ask an independent agent who represents multiple insurers to help you find a "stand-alone" umbrella policy.
Should I purchase an umbrella insurance policy?
In some cases, it makes more sense to purchase an umbrella insurance policy, especially if you have a lot of assets or a high chance of being sued. Progressive advises individuals whose net worth exceeds their maximum liability coverage via their standard insurance policies to open an umbrella policy in order to avoid any negative financial repercussions.
Furthermore, according to the III, you should purchase an umbrella insurance policy if certain activities and lifestyle risks raise the likelihood of someone suing you, such as:
- Owning a swimming pool and having pool parties
- Renting out a property you own
- Having a dog or a teenage driver in the house
You should also consider opening an umbrella policy if you:
- Are a landlord
- Own property
- Have significant savings/assets
- Want protection for liability claims against you when traveling outside the U.S.
- Coach kids’ sports
- Often host parties in your home
- Take part in sports where you could easily injure others - hunting, skiing or surfing
- Are a public figure
Related Content
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FAQs
The amount of your umbrella insurance policy should match your entire net worth. Umbrella insurance policies begin at $1 million and go up from there in $1 million increments. This might seem like a lot, but when it comes to lawsuits and insurance claims, things can add up fast.
What is the rule of thumb for umbrella insurance? ›
"As a rule of thumb, your total coverage should never exceed your net worth," Austin says, "because under no circ*mstances do you need to protect more than you own."
How much is a 2 million dollar umbrella policy? ›
A $2 million umbrella policy costs around $225 to $375 per year, on average. Every policyholder's umbrella insurance premium will vary based on their personal risk factors, so individuals who own more cars or properties will be more expensive to insure, as will people who are particularly likely to be sued.
How to calculate umbrella insurance? ›
To calculate how much umbrella insurance you'll need, add up the value of your assets, including your home, rental properties, cars and money you have in savings and investment accounts. Add in future income, too. Next, examine what your liability limits are on your existing policies.
What are the disadvantages of umbrella insurance? ›
Umbrella insurance doesn't cover your own injuries or property damage — you'll need other types of coverage for that (such as health insurance or collision coverage on your auto insurance). Nor will it cover liability associated with your business unless you have a business umbrella policy rather than a personal one.
Is it smart to have an umbrella policy? ›
An umbrella policy can forestall the prospect of financial ruin due to an unintentional misstep or an unforeseeable accident. You may also wish to consider increasing the liability limits on your auto or homeowners insurance policies.
Do retirees need an umbrella insurance policy? ›
After spending years building up your retirement savings, the last thing you want is for an unexpected catastrophic accident to wipe it all out with one lawsuit. The umbrella liability policy is your key instrument for helping to protect your assets.
What is not covered under an umbrella insurance policy? ›
An umbrella policy generally does not provide coverage for: your injuries or damage to your personal property. a criminal or intentional action causing damage to someone else. liability you assume under a contract.
Is state farm umbrella policy worth it? ›
State Farm's umbrella policies are a good choice for customers with a high net worth who want extra coverage for property damage, injuries, and possible lawsuits that could result from various types of incidents. To be eligible, you will also need an auto policy from State Farm.
What percentage of Americans have an umbrella policy? ›
Why then do so few of us actually have excess liability coverage? Oftentimes, customers don't know exactly what benefits the umbrella policy provides. In fact, only about 20% of homeowners carry an umbrella policy 1. Many that do are sold a $1 million policy though their assets and earnings greatly exceed that number.
Umbrella insurance covers defense costs, judgments and court costs in the event you're sued, and protects against liability related to non-bodily and bodily injuries.
Why is my umbrella insurance so high? ›
The cost of umbrella insurance increases with the amount of insurance coverage. In short, you'll pay more for higher liability limits. Generally, it costs about $40 per month for each $1 million of additional coverage you buy.
How large of an umbrella policy do I need? ›
Our recommendation: You need umbrella insurance of at least $1 million. Before buying an umbrella policy, you need to increase your home and auto insurance liability limits. Click the eligibility tab for details. Risk Factors: Your current risk profile indicates a low level of risk exposure.
What is the average cost of umbrella insurance? ›
What is umbrella insurance? On average, umbrella insurance premiums cost between $200 to $300 per year. When the unexpected happens, your insurance policies are meant to act as a safety net to keep your wallet from feeling the brunt of life's mishaps. Unfortunately, insurance policies do have their limits.
Is umbrella insurance tax deductible? ›
Umbrella insurance is typically deducted as an operating expense on Schedule E of your tax return. This is the form used to report income and expenses from rental property. On Schedule E, you'll list your umbrella policy premiums under “Insurance.”
Why is my umbrella policy so expensive? ›
The cost of an umbrella liability policy depends on how much coverage you purchase, the state where you live (insurance rates vary by state) and the risk that insuring you presents to the insurance company. The more homes or cars you own, and the more household members your policy must cover, the more it will cost.
How much do you think a $1 million umbrella policy would cost annually? ›
Umbrella insurance is actually very inexpensive. A $1 million umbrella policy only costs around $150–300 a year.
What percent of people have an umbrella policy? ›
Oftentimes, customers don't know exactly what benefits the umbrella policy provides. In fact, only about 20% of homeowners carry an umbrella policy 1. Many that do are sold a $1 million policy though their assets and earnings greatly exceed that number. What makes this coverage such an enigma?
