A serious accident can lead to a lawsuit bigger than your auto or home policy covers. Umbrella insurance adds a second layer of protection.
Key points
- Umbrella insurance pays liability claims after your auto, home or renters liability limits are used up.
- It’s usually sold in $1 million increments.
- Insurers require minimum liability limits on your underlying policies.
- It can also cover some claims your other policies don’t, such as certain defamation claims.
- It doesn’t cover your own injuries or damage to your own property.
Your auto and homeowners or renters policies include liability coverage, but limits can be lower than the cost of a serious lawsuit. Umbrella insurance adds extra liability protection on top.
How it works
Imagine you cause a car accident and are found liable for $800,000 in damages, but your auto policy’s liability limit is $300,000. Without umbrella coverage, you could be personally responsible for the remaining $500,000. A $1 million umbrella policy would pay that amount, up to its limit.
What it covers
- Bodily injury and property damage liability above your underlying policies.
- Some claims other policies may exclude, such as certain defamation or false arrest claims, depending on the policy.
- Legal defense costs for covered claims, in many policies.
What it doesn’t cover
- Your own injuries or property.
- Business activities, under a personal policy.
- Intentional acts.
Requirements
Insurers usually require minimum liability limits on your auto and home or renters policies before selling an umbrella policy. Our guide to renters insurance explains liability limits on renters policies.
Please note
Umbrella policies are typically sold in $1 million increments. Choose a limit that reflects what you could lose in a lawsuit, including savings, home equity and future earnings.
Who should consider it
- Homeowners with significant equity or savings.
- Families with teen drivers.
- People with pools, trampolines or dogs.
- Landlords and people who host often.
Related guides
For protecting your income rather than your assets, see our guide to disability insurance.
Frequently asked questions
Who should consider umbrella insurance?
People with significant assets or future earnings to protect, and those with higher liability risks, such as pool owners, landlords or families with teen drivers.
Does it cover business activities?
Personal umbrella policies usually exclude business activities. Businesses need commercial liability or commercial umbrella coverage.
Do I need the same insurer for everything?
Not always, but many insurers sell umbrella policies to existing customers, sometimes with a discount for bundling.
Does umbrella insurance pay legal costs?
Many policies pay for your legal defense in covered claims, often in addition to the policy limit. Check your policy’s wording.
This guide is general information, not insurance, tax or legal advice. Rules, limits and deadlines change each year, so check HealthCare.gov, Medicare.gov or your insurer for your situation.