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Written by Alex Carver WriterAlex Carver is a writer and researcher based in Charlotte, N.C. A contributor to major news websites such as Automoblog and USA Today, she’s written content in sectors such as insurance, warranties, shipping, real estate and more.
Edited by RaShawn Mitchner Senior EditorRaShawn Mitchner is a MarketWatch Guides team senior editor covering personal finance topics and insurance. She’s spent over a decade writing and editing articles about how to save money on travel, entertainment, household services and more.
In some cases, standard car, boat and home insurance policies may not be enough to cover all of the expenses you’re liable for after an accident. An umbrella insurance policy can bridge the gap between what your regular insurance policy covers and what you still owe.
Our guide explains umbrella insurance, what it covers, exclusions that might apply and the best insurance providers to consider when shopping for a policy.
Key Takeaways
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An umbrella insurance policy is supplemental coverage that goes into effect when you exceed the liability coverage limits of other policies you have, such as car insurance, homeowners insurance, renters insurance and boat insurance.
For example, let’s say you’re involved in a serious car accident where the other driver sustains injuries requiring ongoing medical care. Your auto insurance policy has a bodily injury liability limit of $50,000, but the other driver’s medical expenses are $75,000.
If you have an umbrella policy, your insurance company pays the balance of what you owe beyond what your liability insurance pays. It provides extra protection for your assets and can give you peace of mind when serious accidents happen.
Here are some of the things an umbrella insurance policy covers:
More detailed examples of this include:
Umbrella insurance is a personal liability policy. It won’t cover the following:
Ask your insurance agent about your policy’s exclusions when you sign up.
Umbrella policies kick in when all other coverage is exhausted. For example, suppose you’re involved in a car accident with damages and bills that exceed your liability protection and property insurance limits. In that case, umbrella insurance pays for the rest of the claim up to policy limits. It can also cover legal costs, pain and suffering and lost income if a court finds you at fault for the accident.
Unlike car insurance, state laws don’t require you to carry a personal umbrella insurance policy. However, it’s a good idea to have one if:
You can further protect yourself by increasing your personal liability limits on your car insurance. Experts recommend carrying $100,000 of bodily injury liability insurance per person, $300,000 in bodily injury liability coverage per accident and $100,000 in property damage liability coverage per accident.
Even though you’ll pay higher premiums, you also gain extra liability coverage. When you combine higher liability limits with a personal umbrella insurance policy, you’ll have financial protection for serious accidents.
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. For example, if your assets total $300,000 but your personal liability insurance covers $100,000, you’ll need an umbrella policy that covers at least $200,000.
Many insurance carriers sell umbrella insurance in $1 million increments. These policies cost only a few hundred dollars per year. That might sound like an excessive amount of coverage until you consider the high costs of medical bills, legal fees, pain and suffering and lost income.
Source: The Ramsey ShowBenefits of umbrella insurance include protecting your assets if a judgment exceeds the personal liability coverage of your insurance policies. With enough umbrella insurance, you won’t have to pay out of pocket for others’ medical bills and other accident-related costs.
An umbrella policy can also protect you while you’re doing your job. If you review products, services or companies for a living, a negative review you write could cause a business to sue you for libel. If you made any mistakes in the review, you could be on the hook for damages. Having an umbrella policy mitigates the out-of-pocket expenses that could arise.
Also, because umbrella insurance often only costs a few hundred dollars a year, it’s an affordable way to secure some peace of mind.
When selecting an umbrella policy, here are a few things to consider:
Umbrella insurance provides added liability coverage for when damages exceed the coverage limits of your other insurance policies. It reduces the likelihood you’ll have to pay out of pocket for damages, especially after serious accidents.
Getting umbrella insurance is a good idea if you own property, coach youth sports, host parties or review businesses for a living. You can calculate how much you need by determining your net worth and subtracting the liability limits of your current insurance policies.
