What Does Umbrella Insurance Cover?
Umbrella insurance covers personal liability claims including bodily injury, property damage, and certain personal liability claims like defamation, false arrest, or invasion of privacy. It kicks in after your underlying policy limits — say your auto policy's $300,000 liability limit — are exhausted. It typically also covers you in situations your other policies do not, such as incidents that occur abroad.
Who Needs Umbrella Insurance?
Anyone with significant assets worth protecting should consider umbrella coverage. This includes homeowners, dog owners, people with teenage drivers, frequent hosts of guests, those with swimming pools or trampolines, and high-income earners whose future wages could be garnished in a judgment. Given that a $1 million policy typically costs just $150 to $300 per year, it offers extraordinary value per dollar spent.
How Much Umbrella Insurance Should You Buy?
A general guideline is to purchase at least enough to cover your total net worth, including future income. Most people start with $1 million in coverage, but those with higher assets, greater liability exposure, or significant income may need $2 to $5 million. You must typically maintain minimum liability limits on your underlying policies to qualify for umbrella coverage.
Frequently asked questions
Does umbrella insurance cover business liability?
Generally no. Personal umbrella policies cover personal, not business, liability. If you run a home-based business or side business, you likely need a separate commercial umbrella or general liability policy to protect business-related risks.
Is umbrella insurance expensive?
Umbrella insurance is one of the most cost-effective forms of coverage available. A $1 million policy typically costs $150 to $300 per year, and additional millions are even cheaper incrementally. The relatively low cost compared to the protection it provides makes it a smart purchase for most homeowners.