What Is Umbrella Insurance?

Some accidents can go over your liability limits. Without an umbrella policy, you may need to pay for it. Here's how these policies work.
Man holding a umbrella over a wooden car

Imagine that you got into an accident and wrecked a Lamborghini. In most cases, policy limits would be maxed out and then some. Umbrella insurance provides extra liability coverage that extends your personal policy. Many don’t purchase it because of the increased cost. But adding it adds an additional layer of protection to your basic policy.

The purpose of umbrella insurance is to protect you from massive claims and expenses that your normal policy wouldn’t cover. Not having it could cause you to pay large sums of money that could ruin you. There’s no other way to prepare, because disaster could strike at any time.

In this article:

  • How Umbrella coverage works
  • What it covers
  • What it doesn’t covert
  • Who needs extra liability protection
  • How to buy it
  • How much it costs
  • Insurers that offer umbrella policies
  • Frequently asked questions

How Umbrella Insurance Works

Umbrella insurance is a type of coverage that you stack on top of your liability. This is because it goes beyond your current limits to cover super-expensive claims. This means that these policies only work if a claim exceeds your policy maximums.  

Keep in mind that umbrella insurance only counts as extra liability coverage when you’re at fault. It won’t cover any other types of claims.

What It Covers

Umbrella insurance can protect you in plenty of situations. It covers just about everything that basic liability does. Here’s a list of what it covers:

Bodily Injury

Your personal umbrella insurance policy will pay for medical bills related to injuries other people suffer in an accident. This doesn’t include any injury you experience. But it will most likely cover your passengers because you’re liable for their injuries. Below is a full list of what’s covered in the way of injuries:

  • Medical costs
  • Income and wage losses
  • Long-term medical care e.g., physical therapy
  • Legal fees
  • Funeral costs
  • Pain and suffering

Property Damage

Umbrella insurance will also cover any property damage you cause in an accident. Here’s what counts as property damage:

  • Light posts or street lamps
  • Buildings and structures
  • The other party’s car and property inside it
  • Statues
  • Trees

Note that an umbrella insurance policy will cover the same expenses as liability coverage. And, like liability, you must be at fault for it to kick in. Check with your agent if you have any other questions about bodily injury or property damage.

What It Doesn’t Cover

You don’t have full protection from everything when you have umbrella insurance. There are still some costs that aren’t covered. This is because these policies are only for when you’re at fault. Here is exactly what it won’t cover:

  • Personal property
  • Your injuries
  • Damage that you cause on purpose
  • Liability from business activities (you’ll need a business policy for this)

Who Needs Extra Liability Protection

Umbrella insurance is useful because it can help you save money and stress. But some people need it more than others. Here are a few examples of people that should consider adding this type of policy:

People Who Worry About Lawsuits

Lawsuits are one of the main reasons people buy umbrella insurance. They’re common across the country. Someone could sue you if you’re at fault in an accident. If you’re caught in a suit, you could end up having to pay a large settlement. They can often be so big that they could wipe out your bank account. Attorney fees are also an expense you’d have to pay.

Your liability insurance will take care of a certain amount of legal fees during a lawsuit. But it might not always be able to cover the full amount. It’ll stop covering the expenses once the total cost exceeds your limits.

You should consider buying umbrella insurance if a lawsuit is likely to clean you out. It’ll offer you protection from having to pay for what your liability won’t cover. Adding extra coverage is a smart choice if you’re not very rich.

Those Who Have an Inexperienced Driver or Teen on Their Policy

New drivers are at higher risk than those who’ve been doing it for years. Insurers even reflect this in their rates. Chances are, you’re the one who’s responsible for this new driver on your policy. They could go out and get into a wreck that you’d be liable for. The other party could even sue you.

Umbrella coverage is a good idea for people with a new driver on their policy. This is because it’ll protect you from having to pay what your car insurance won’t already cover. It’s a smart choice if you’re looking for a little extra protection with a new driver.

Someone Who Lives in a Wealthy or High-End Area

You might consider buying umbrella if you live in an expensive area. Wealthier areas are more likely to have expensive property and cars that you could get into an accident with. Your liability insurance might not be able to cover the damage costs to a high-end or exotic car.

Rich people are also more likely to sue you after an accident because they can afford to. An umbrella policy would make sure you don’t have to shell out thousands of dollars for a lawsuit.

How to Buy Umbrella Coverage

Umbrella insurance isn’t a part of your regular auto policy. To buy it from a specific insurer, you usually need to carry a minimum amount of liability with them. Most providers offer these types of policies for both auto and homeowners coverage. Make sure to check with your agent to see if you can buy it from them.

Note: according to the Insurance Information Institute (III), many providers want you to carry about $250,000 of liability before you can buy umbrella. Insurers may also want you to carry $300,000 of homeowners coverage. This is because they want you to already have an underlying amount of protection before you buy any more.

How It Costs

The cost of umbrella insurance is unique to every driver. Providers consider a variety of factors when they calculate your rates. Below is a list of the most common rate factors that insurers use:

  • Driving record
  • Marital status
  • Gender
  • Where you live
  • Car mileage

Insurers That Offer Umbrella Coverage

Just about any insurance company will sell you an umbrella personal liability policy. Each one is a bit different. And they all set different rates. But you’ll seldom pay much. Below is a partial list of providers that offer this type of coverage:

Umbrella Protection For Businesses

Most people only need umbrella insurance. But others might need to buy a business policy. These work the same way as personal ones. They add extra liability protection on top of what you already have.

Business policies are a good idea if you have employees who use a company car. They could get into an accident, and your business would be liable to pay. They also would protect your business from lawsuits after an accident. Consider buying one of these policies for your business if you want to add extra coverage.

Frequently Asked Questions

Is umbrella insurance the same as excess liability?

No, they’re not the same. Many people talk about the two as if they’re the same thing. Excess insurance is similar because it kicks in when expenses exceed your policy limits. Typically, excess will only cover one of your liability policies, while umbrella can covers more than one policy and a variety of assets. Check with your insurer before buying either one to see what’s right for you.

Is adding umbrella coverage to your policy worth it?

It depends. Umbrella insurance coverage can be really helpful, but they can also get expensive. You should consider getting one if:

  • You added a teen or new driver to your policy
  • You worry that a lawsuit could wipe out your bank account
  • You live in an expensive or high-end area
  • You just want the extra protection, or you can afford it

Generally, you should buy as much insurance as you can afford. Umbrella just adds that much extra protection. You never know when disaster can strike. Consider buying it if any of the above describes you.

How much coverage do I get with an umbrella policy?

An umbrella insurance policy can give you anywhere from $1,000,000-$5,000,000 in coverage. This will ensure you have protection from any major claims or lawsuit settlements you’d otherwise have to pay for.


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