Why You Need an Umbrella Policy

 

Should I Purchase Liability Insurance?

If you own a home, drive a car, have a pool, post on social media, or have teenagers behind the wheel, the better question might be: can you afford not to?

A personal liability umbrella policy is designed to protect you when a claim exceeds the limits of your home, auto, or renters insurance. In today’s world, lawsuits are more common and settlement amounts are higher than ever. One serious accident could quickly surpass the liability limits of a standard policy.

For most households, it’s wise to consider a personal umbrella policy with at least a $1,000,000 limit. This coverage steps in after your underlying policies are exhausted and provides an extra layer of financial protection.

What Is Umbrella Insurance?

Umbrella insurance is a form of liability insurance that supplements your basic liability policies, such as your auto, home, or renters insurance. It provides a much higher limit of protection and goes above and beyond claims directly related to your home or vehicle.

The primary purpose of an umbrella policy is to protect your assets from an unforeseen event, such as a tragic accident where you are held legally responsible for damages or bodily injury. If another party files a lawsuit against you, your umbrella coverage can help pay the damages you are legally obligated to cover, up to your selected policy limit.

What Does Umbrella Insurance Cover?

An umbrella policy provides excess liability coverage above your basic policy limits. It can protect you from:

• Bodily injury liability claims
• Property damage liability claims
• Legal defense costs
• Personal injury claims

Personal injury coverage under an umbrella policy can include exposures such as:

• Libel
• Slander
• Defamation of character
• Wrongful eviction
• Malicious prosecution

Most umbrella policies provide worldwide coverage, and importantly, they typically cover defense costs in addition to your policy’s liability limit.

Real-Life Examples

• Umbrella coverage may apply in situations such as:
• Your dog attacks someone at the park and the injured party sues for medical costs and pain and suffering.
• A tenant’s guest trips and falls at your rental property.
• You cause a multi-vehicle accident that results in serious injuries.
• Your child is accused of cyberbullying a classmate.
• A texting-while-driving accident causes significant property damage to a local business.
• A neighbor’s child accesses your property and is injured in your pool.

In scenarios like these, liability costs can easily exceed the limits of your homeowners or auto insurance. An umbrella policy helps bridge that gap.

How Does Umbrella Insurance Work?

An umbrella policy comes into play once your underlying liability limits have been exhausted. If you are found liable for damages, or even if you must defend yourself in court, your umbrella policy may step in to cover settlement amounts and legal expenses, up to your coverage limit.

If a settlement exceeds your umbrella limit, you would be responsible for the remaining amount out of pocket. That’s why selecting the right limit is so important.

How Much Umbrella Insurance Should I Carry?

When determining your coverage limit, consider:

1. Your Risks

Think about your lifestyle and exposures. Do you own property? Have teenage drivers? Own boats or recreational vehicles? Commute frequently? Participate in activities that could increase liability risk?

2. The Value of Your Assets

Consider your home, savings, investments, retirement accounts, and other property. The more you have to protect, the more coverage you should consider.

3. Your Future Earning Potential

Even if you don’t have substantial assets today, a lawsuit can target future income. If you are on track for a high-earning career, protecting that future income is just as important as protecting current assets.

How Much Does Umbrella Insurance Cost?

Coverage is often more affordable than people expect.

A $1,000,000 personal liability umbrella policy generally costs between $200 and $400 per year, depending on your exposures. Pricing is influenced by factors such as:

• Number of vehicles
• Number of drivers in the household
• Boats or watercraft
• Recreational vehicles
• Rental properties

Additional layers of coverage are typically less expensive per million than the first layer, meaning increasing your limit often provides strong value relative to the added premium.

Is an Umbrella Policy Worth It?

For many individuals and families, the answer is yes. A personal umbrella policy provides an added layer of protection, broader coverage (including personal injury exposures), worldwide protection in most cases, and defense costs beyond your liability limit.

Considering the relatively low annual cost compared to the financial protection it provides, an umbrella policy can be one of the most cost-effective ways to safeguard your assets and your future.

Updated February 21, 2026