What umbrella insurance does
Umbrella insurance is a liability policy that covers you when the liability limits on your home or auto insurance run out. If someone sues you for damages that exceed what your homeowners or car insurance will pay, umbrella insurance picks up the remaining cost — up to the umbrella policy's limit.
The policy covers the same types of incidents as your underlying insurance: someone injured on your property, damage you cause with your car, or injury caused by you or a family member living in your home. It does not cover damage to your own property or injuries you cause to yourself. It also does not cover intentional acts, criminal conduct, or business activities.
Umbrella policies typically start at $1 million in coverage and go up from there. You must already have homeowners insurance and auto insurance to buy an umbrella policy — most insurers require minimum liability limits on those policies before they will sell you an umbrella.
Key Takeaways
- Umbrella insurance only activates after your homeowners or auto insurance liability limits are exhausted, so you need both policies in place.
- Most umbrella policies require your underlying home and auto policies to have minimum liability limits, often $250,000 to $300,000 per occurrence.
- A $1 million umbrella policy typically costs $150 to $300 per year, with higher limits costing more depending on your risk profile and insurer.
- The policy covers liability claims from accidents on your property, car accidents you cause, or injuries caused by family members, but not intentional harm or business activities.
- You can usually add coverage for rental properties, boats, or other assets by paying an additional premium.
How umbrella coverage layers on top of your existing policies
Umbrella insurance works as a second layer of protection. Your homeowners policy might cover up to $300,000 in liability if someone is injured at your home. If a court awards $500,000 in damages, your homeowners policy pays $300,000 and your umbrella policy covers the remaining $200,000.
Before an umbrella policy will pay anything, the claim must first go through your underlying policy. The umbrella does not replace your homeowners or auto coverage — it sits above it. This is why insurers require minimum liability limits on your base policies. If your homeowners policy has only $100,000 in liability coverage, some umbrella insurers will not sell you a policy at all, or they will require you to raise that limit first.
The umbrella policy also covers some situations your base policies might not. If you are sued for slander, libel, or false arrest, an umbrella policy may step in where your homeowners policy stops. Coverage varies by insurer, so read the policy details before you buy.
Minimum liability limits required to purchase umbrella insurance
Most insurers will not sell you an umbrella policy unless your homeowners insurance has at least $250,000 to $300,000 in liability coverage and your auto insurance has at least $250,000 to $300,000 per person and $500,000 per accident in bodily injury liability. Some insurers set these minimums higher; others are more flexible.
If your current policies fall short, you will need to increase those limits before buying an umbrella. Raising your homeowners liability limit from $100,000 to $300,000 usually costs $15 to $30 per year. Raising your auto liability limits costs more — typically $30 to $60 per year — depending on your driving record and location.
Contact your homeowners and auto insurers to find out their specific requirements. Some will waive the minimum if you bundle your umbrella policy with them, though this is less common.
Cost and coverage limits for umbrella policies
A $1 million umbrella policy typically costs $150 to $300 per year. A $2 million policy usually runs $250 to $500 per year. Costs depend on your age, claims history, location, and the number of drivers or properties you are insuring. Insurers also consider whether you have a swimming pool, trampoline, or other high-risk features on your property.
You can buy umbrella coverage in $1 million increments. Most people buy $1 million or $2 million; some buy $5 million or more if they own significant assets or have high income. The higher your limit, the lower the cost per million dollars of coverage — a $5 million policy might cost $600 to $1,000 per year, not five times the cost of a $1 million policy.
Costs also vary widely by insurer. Getting quotes from at least three companies is worth your time, especially if you bundle your umbrella with your homeowners or auto policy. Some insurers offer discounts of 10 to 25 percent if you buy multiple policies from them.
What umbrella insurance does not cover
Umbrella insurance does not cover damage to your own property or injuries you suffer. If a tree falls on your house, your homeowners insurance covers it, not your umbrella. If you are injured in a car accident you caused, your own medical bills are not covered by the umbrella.
The policy also excludes intentional acts. If you deliberately harm someone or damage their property, the umbrella will not pay. Criminal conduct, including assault or theft, is not covered. Business activities are typically excluded too — if you run a business from home or operate a vehicle for work, you will need separate business liability insurance.
Contractual liability is usually not covered unless you specifically add it. If you signed a contract agreeing to hold someone harmless and you cause them injury, the umbrella may not step in. Some insurers offer this as an add-on for an extra premium.
When you might need umbrella insurance
Umbrella insurance makes sense if you own a home, have significant assets to protect, or have a high income. A lawsuit can result in a judgment against your future wages, so even if you do not own much now, umbrella coverage protects your earning potential.
You should consider it if you have a swimming pool, trampoline, or other feature that increases injury risk on your property. If you host gatherings frequently or have teenage drivers in your household, the risk of a liability claim rises. If you own rental properties or a vacation home, umbrella coverage becomes more important because you have multiple properties where accidents could occur.
If you have a professional license — as a doctor, lawyer, or contractor — check whether your professional liability insurance covers you outside work. If not, umbrella insurance fills that gap. Parents of adult children living at home should also consider umbrella coverage, since the policy covers family members' actions.
How to add umbrella insurance to your existing policies
Start by contacting your homeowners and auto insurers to ask whether they offer umbrella policies and what minimum liability limits they require. Many insurers will quote you over the phone or online. You will need to provide your current policy numbers and coverage limits.
If your current insurer does not offer umbrella coverage or their rates are high, get quotes from other companies. Some insurers specialize in umbrella policies and may offer better rates than your homeowners or auto insurer. Compare at least three quotes before deciding.
Once you choose a policy, the insurer will verify that your homeowners and auto policies meet their minimum requirements. If they do not, you will need to increase those limits first. After your underlying policies are in place, the umbrella policy typically takes effect within a few days to a week.
Frequently Asked Questions
Do I need umbrella insurance if I rent instead of own a home?
Yes, renters can buy umbrella insurance. You will still need renters insurance as your base policy, and your renters policy must meet the insurer's minimum liability limits. Umbrella coverage protects you if you cause injury to someone else or damage their property, which can happen whether you own or rent.
What happens if someone sues me for more than my umbrella limit?
If a judgment exceeds your umbrella limit, you are responsible for the difference. This is rare but possible in serious injury cases. This is why some people with high assets or high-risk situations buy umbrella policies with $2 million, $5 million, or higher limits.
Can I use umbrella insurance to cover my business?
No, umbrella policies exclude business activities. If you run a business, you need a separate commercial general liability policy. Some umbrella insurers offer add-ons for home-based businesses, but coverage is limited and you should discuss your specific situation with your insurer.
Does umbrella insurance cover me if I cause an accident while driving someone else's car?
It depends on your auto policy and the umbrella policy terms. If your auto insurance covers you while driving other vehicles, the umbrella will typically cover you too. Check your auto policy to confirm this coverage exists, because it is not automatic on all policies.
Will my umbrella insurance rates go up if I file a claim?
Yes, filing an umbrella claim can increase your rates, just as filing a homeowners or auto claim does. The increase depends on the size of the claim and your insurer's underwriting guidelines. Some insurers offer accident forgiveness or claim-free discounts that may soften the rate increase.