Umbrella insurance is a type of insurance coverage that extends the liability insurance from an auto or homeowner’s insurance policy to cover more situations with higher limits. Umbrella insurance policies offer extended coverage limits that start at $1 million and will also cover forms of liability such as libel and slander. Also referred to as personal umbrella insurance, it can supplement insurance policies for motorcycles, boats, and other recreational vehicles, too.
Key Things to Know About Umbrella Insurance
- Umbrella insurance costs between $150 and $300 annually.
- You should consider getting umbrella insurance if your liability limits are less than the total value of your assets.
- Umbrella insurance covers situations beyond the scope of normal liability insurance, including personal psychological harm and mental anguish.
- Umbrella policies do not cover your own injuries or property damage.
- Umbrella insurance policy limits start at $1 million and can go as high as $10 million.
How Umbrella Insurance Works
Umbrella insurance works by extending your auto or homeowner’s liability insurance coverage. Auto and homeowner’s liability coverage typically can be purchased with limits of no more than $300,000 to $500,000, depending on your insurer and the type of coverage. If your net worth is higher than that, your savings, the equity in your house and even future earnings are at risk if an accident results in a large judgment against you.
That’s where personal umbrella insurance (PUP) can protect you. PUP policies start at $1 million in coverage and are available with limits as high as $5 million to $10 million, depending on the insurer.
So, for example, if you’re at fault in a car accident that results in serious injuries, you could be responsible for substantial medical costs, plus an award for pain and suffering. With the protection of a PUP policy, you’ll get coverage first from your auto insurance, and then your PUP insurance will cover the rest, after deductibles and up to your coverage limit.
What Umbrella Insurance Covers
- Liability in excess of car/home insurance policy limits
- Libel and slander
- False arrest
- Malicious prosecution
- Personal psychological harm and mental anguish
- Legal defense costs for covered losses
- Liabilities when traveling overseas
- Other things not covered by home and auto policies
The main benefit of umbrella insurance is that it applies to a broader range of situations than a normal home or auto insurance policy. And it’s especially useful in cases where you are potentially facing a serious financial loss as a result of the claim.
Examples of umbrella insurance claims:
- Your dog bites a neighbor’s child.
- A serious car accident results in severe injuries to several people.
- You post a message on social media that someone considers libelous.
- A repairman slips on the stairs in your home and has a disfiguring injury.
What Umbrella Insurance Does Not Cover
- Your own injuries and property damage.
- Property damage or injuries that you intentionally cause to others.
- Property damage or injuries that you cause while performing business or professional activities.
- Any liability that you have assumed through a contract.
Some umbrella policies also exclude damage or injuries caused by certain dog breeds or recreational vehicles.
How Much Does Umbrella Insurance Cost?
You can expect $1 million of personal umbrella insurance coverage to cost between $150 and $300 annually, according to the Insurance Information Institute. Each additional $1 million in coverage will cost $50 to $75 per year. This type of coverage is relatively inexpensive because it supplements other policies – and because it covers against circumstances that are relatively unlikely.
Because it is a supplementary form of insurance, you must first get the maximum level of coverage available on your other liability policies before you can purchase personal umbrella coverage.
Do You Need Umbrella Insurance?
Personal umbrella insurance is designed for people with a high net worth and people who want to protect future earnings.
Before buying personal umbrella insurance, you should assess your assets. Total up your home equity, personal savings, brokerage accounts, retirement accounts, kids’ college fund, and other assets. If the total exceeds the limits of either your auto or homeowner’s insurance, then personal umbrella coverage might be a good investment. Without personal umbrella insurance, you will be financially liable for claims that exceed your liability limits, and your assets could even be seized to cover the damages.
You should also consider whether there are things in your lifestyle that increase the odds of you being liable for someone’s injuries at some point. These might include owning a dog or having teenage drivers in your house.
When You Might Consider Umbrella Insurance
- Your home has a swimming pool
- Your home has a tree house, swings, or trampoline
- You own a dog
- You have teenage drivers in your household
Ask the Experts
To gain more insight about Umbrella insurance, WalletHub posed the following questions to a panel of experts. Click on the experts below to view their bios and answers.
1. Who should purchase umbrella insurance?
2. How should people choose their umbrella insurance coverage limits?