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Mandy Sleight has over 15 years of insurance knowledge and expertise in auto, home, life, health, pet, supplemental benefits, and other insurance products. She’s a sought-after insurance expert, appearing in Bankrate.com, Moneygeek.com, U.S. News & World Report, Reviews.com, CNET, and other publications, and she's been writing for Compare.com since 2023.
Mandy uses her background and experience working for well-known insurance companies like State Farm and Nationwide Insurance to create engaging and easy-to-understand content that helps readers make smarter insurance choices that have a positive effect on their budgets and finances.
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Lequita Westbrooks is an insurance editor at Compare.com. Her writing and editing experiences span several industries, including insurance, personal finance, higher education, and more. She excels at explaining complex topics like auto insurance in simple, easy-to-understand language and is passionate about helping readers save money. Lequita graduated from the University of South Florida, where she earned her Bachelor’s degree in English.
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Umbrella insurance provides extra liability protection that kicks in when your home or auto insurance limits max out.[1] It helps cover major car accidents, serious injuries on your property, or lawsuits — expenses that could otherwise put your savings or assets at risk.
An umbrella insurance policy is especially valuable for high-net-worth people or anyone who needs added financial security.
In this article, we’ll explain how umbrella insurance works, who needs it, and how to decide if you need it.
Umbrella insurance provides additional liability protection for bodily injury, property damage, and personal injury if you exceed your home or auto liability limits.
The more assets you have, the more umbrella insurance you may need.
Umbrella policy costs depend on how many homes, drivers, and vehicles you own.
Umbrella insurance is a type of personal liability coverage that provides an extra layer of financial protection beyond your homeowners, renters, or auto liability limits. Some people refer to it as excess liability insurance, but umbrella insurance also gives you broader protection for certain claims your underlying policies don’t cover.[2]
It protects your finances and assets if someone sues you for major injuries, property damage, or another serious incident.
For example, if you cause a serious car accident or someone sues after an injury at your home, umbrella insurance can help cover legal fees, court costs, and judgments. Without it, you’d be on the hook for the amount that exceeds your auto or homeowners policy limits.
The key difference between umbrella insurance and personal liability coverage is the level and scope of protection.
Personal liability coverage is part of your condo, homeowners, or renters insurance, but it protects you only up to your coverage limits. On the other hand, an umbrella policy protects you above those limits and can apply to multiple insurance policies, such as auto, home, boat, and rental property.
Personal liability coverage may be enough for basic needs, but it’s important to understand your risk exposure. If you have valuable assets, a high net worth, or greater exposure to legal risks, umbrella insurance may be worth the extra cost.
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Umbrella insurance kicks in when a claim exceeds the liability limits of your auto, home, or renters policy. It acts as a financial safety net. Here’s how it works:
Someone files a claim against your auto or home insurance policy.
Your insurer determines you’re at fault and pays up to your policy’s liability limit.
If costs exceed that limit, your umbrella policy covers the remaining amount, up to its own limit.
For example, let’s say you’re liable for $600,000 after an auto accident, but your car insurance policy covers only up to $300,000. Your umbrella insurance can cover the remaining $300,000, plus legal fees.
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Umbrella insurance policies cover several major types of liability, including bodily injury, property damage, personal injury, and landlord liability.
Here’s more about the types of liability that umbrella insurance can cover.
Bodily injury liability covers medical expenses, legal fees, and damages if you or someone in your household is responsible for accidentally injuring someone. For example, if you cause a car accident that results in serious injuries and the costs exceed your auto policy’s liability limits, your umbrella policy will help cover the rest.
It also applies to injuries that occur on your property, like a guest slipping on your driveway, your child’s friend falling off your swingset, or your dog biting someone.
Umbrella coverage can help if you cause major damage to someone else’s property. For instance, if your teenager crashes into multiple vehicles or accidentally causes extensive damage to your neighbor’s house. Once your underlying property damage liability policy pays out its maximum, umbrella insurance helps pay the rest.
Personal injury coverage protects against non-physical injuries you might cause, such as:
Slander
Libel
Defamation of character
False arrest
Wrongful eviction
Mental anguish
Malicious prosecution
Personal injury lawsuits can be costly if they go to trial. For example, in 2020, the median jury award was about $125,000, but the average verdict exceeded $2.4 million.[3]
If you own rental properties, an umbrella policy protects beyond your landlord insurance. It can cover negligence claims, tenant injuries, and property damage you’re legally responsible for, making it essential for landlords with multiple units or high-risk properties.
Like all insurance, umbrella liability policies have specific exclusions you should be aware of, including:
Contract disputes: Liability claims tied to broken contracts typically aren’t covered.
Business-related liability: Standard umbrella policies don’t cover business losses or professional liability. You’d need a commercial umbrella policy to extend your business liability coverage.
Intentional or criminal acts: Your umbrella policy won’t cover claims if you cause harm on purpose or while engaging in illegal activities, including driving under the influence.
Your own injuries or property damage: Umbrella policies cover only liability to others, not damage to your own property or bodily injuries.
Certain animals or vehicles: Some umbrella policies exclude certain dog breeds, animals, and recreational vehicles.
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The cost of an umbrella policy depends on several factors:
The number of cars, boats, RVs, and homes you own
The number of drivers in your household, including their ages and driving records
Your underlying liability limits on your auto, home, boat, or RV policy
Where you live
The average $1 million umbrella policy costs $383 per year for one home and two cars and drivers, with a $500,000 underlying liability limit, according to a recent ACE Private Risk Services report.[4] Your cost may increase if you have teen drivers, own rental properties, or own features that increase liability risk, such as a swimming pool, trampoline, boat, or dog.
You can usually lower your premium by bundling your umbrella policy with the same insurance company as your auto and home policy. Raising your umbrella deductible can also reduce the cost.
Umbrella insurance is ideal for people who need extra protection beyond what standard liability policies offer. If you have assets or face a higher risk of liability claims, an umbrella policy can safeguard your finances against a lawsuit or major accident.
You may benefit from an umbrella insurance policy if you:
Own a home or rental property
Live with a teen or young driver
Regularly host guests at your home
Post frequently online or on social media
Employ staff for your home or properties
Serve on a non-profit board
Own a pool, trampoline, or certain pets
You should carefully evaluate your personal risks — as your net worth grows, so does your liability risk.
When deciding how much umbrella insurance to buy, a good rule of thumb is to match your coverage to your total net worth — your assets minus liabilities. This helps protect your personal assets against a costly lawsuit or accident. Umbrella insurance typically starts with $1 million in coverage and goes up in $1 million increments, allowing you to scale coverage to fit your needs.
For example, if your home, vehicles, and investments total $1.5 million, you may want at least $2 million in umbrella insurance. If you own rental properties or have teen drivers, you may want even more to cover the increased liability.
If you’re still unsure how much umbrella insurance to buy, talk with an experienced insurance agent, who can assess your risk and recommend the best options.
To buy an umbrella policy, follow these simple steps:
Assess your liability risk. Determine how much liability coverage you need in addition to your auto and home coverage. Think about your net worth and potential exposure to lawsuits.
Compare quotes. Just like shopping around for auto and home insurance helps you get the best deal, the same is true for umbrella insurance. Compare quotes from multiple companies, including your home and auto insurer, to see if bundling policies is cheaper.
Ask about discounts. You may be eligible for additional discounts for lowering your risk exposure, such as installing an automatic locking gate around your swimming pool.
Check the fine print. Coverage details and exclusions can vary by insurance company. Make sure to read the fine print and ask your agents questions if necessary to confirm that it will meet your needs.
Finalize your policy. Once you find the umbrella policy that works best for your risk situation, sign the application and pay for the policy. Save a copy of your policy documents for your files.
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Below are the answers to some common questions people ask about umbrella insurance.
Yes, an umbrella policy is worth it if you have more assets than your existing liability coverage protects. A serious car accident or slip and fall at your home could quickly exceed your liability limits, causing you to pay out of pocket for the rest.
An umbrella policy can provide at least $1 million in additional liability insurance at a relatively low cost — often less than $400 per year — for greater peace of mind.
How much umbrella insurance you need depends on your risk profile and net worth. A common rule is to match your coverage to your net worth. For example, if your net worth is $2.5 million and you have only $500,000 in liability coverage through your auto and home policies, it’s wise to consider a $2 million umbrella policy to fill the gap.
Yes, you must have higher liability limits on your home or auto policies to qualify for umbrella insurance. Companies typically require at least $300,000 in personal liability coverage on a renters, condo, or home insurance policy.
Auto policies should have at least 300/300/100 liability limits. You can usually lower your umbrella premium if you increase your home liability to $500,000 and auto to 250/500/100.
You should get umbrella insurance when your assets or income exceed the maximum liability coverage on your auto or home policy. It’s also a good idea if you’re at higher risk of lawsuits due to property ownership, young drivers, household staff, or frequent hosting of guests in your home.
Yes. An umbrella policy will provide additional liability protection if you exhaust the personal liability coverage on your renters insurance, just like with a homeowners policy. High-net-worth renters who want to avoid out-of-pocket expenses from a lawsuit or serious accident should consider umbrella insurance.
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Mandy Sleight has over 15 years of insurance knowledge and expertise in auto, home, life, health, pet, supplemental benefits, and other insurance products. She’s a sought-after insurance expert, appearing in Bankrate.com, Moneygeek.com, U.S. News & World Report, Reviews.com, CNET, and other publications, and she's been writing for Compare.com since 2023.
Mandy uses her background and experience working for well-known insurance companies like State Farm and Nationwide Insurance to create engaging and easy-to-understand content that helps readers make smarter insurance choices that have a positive effect on their budgets and finances.
Lequita Westbrooks is an insurance editor at Compare.com. Her writing and editing experiences span several industries, including insurance, personal finance, higher education, and more. She excels at explaining complex topics like auto insurance in simple, easy-to-understand language and is passionate about helping readers save money. Lequita graduated from the University of South Florida, where she earned her Bachelor’s degree in English.
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