An umbrella policy provides $1 million or more in additional liability coverage beyond your auto and homeowners limits. It costs $200-$400 per year for $1 million in coverage. It is especially useful if you have significant assets, a swimming pool, teenage drivers, rental properties, or anything that increases your lawsuit risk.
What Umbrella Insurance Covers
An umbrella policy kicks in after your underlying auto or homeowners liability limits are exhausted. It covers bodily injury, property damage, and some personal injury lawsuits (libel, slander, defamation). It typically covers legal defense costs as well, which can be substantial even if you win.
Cost of an Umbrella Policy
For $1 million in coverage, expect to pay $200-$400 per year. Additional $1 million tiers cost less. Most insurers require you to carry certain minimum limits on your auto ($300,000) and homeowners ($300,000) policies before they will write an umbrella.
When You Need Umbrella Insurance
Consider an umbrella if you own a home, have significant savings or investments, own rental properties, have a swimming pool or trampoline, employ household staff, have teenage drivers, serve on a nonprofit board, or own dogs with aggressive breeds. Your net worth is the primary factor.
How Much Coverage Do You Need?
A common rule of thumb is to carry umbrella coverage equal to or exceeding your net worth. If your net worth is $500,000, a $1 million umbrella gives you $1.5 million in total liability protection. Your insurance agent can help you calculate the right amount based on your assets and risk profile.