Umbrella Insurance: Coverage & How It Works (2024 Guide) - NerdWallet (2024)

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Nobody’s perfect. That’s why you buy liability insurance: You can avoid financial ruin if you accidentally cause major injuries or property damage to others. But your insurance isn’t perfect, either. That’s where a personal umbrella insurance policy comes in.

Umbrella Insurance: Coverage & How It Works (2024 Guide) - NerdWallet (1)

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What is umbrella insurance?

Umbrella insurance — sometimes called personal liability umbrella insurance — is protection for your savings and other assets. It provides extra liability coverage beyond the limits on your existing policies, such as car or homeowners insurance. If you're at fault for injuries or damage and your other policies aren't enough to cover the costs, an umbrella policy helps pay what you owe.

Umbrella insurance is similar but not necessarily identical to excess liability insurance. What’s the difference? Excess liability coverage typically provides a higher liability limit on the policies you already have, while umbrella insurance may also add coverage for circ*mstances your underlying policies don’t include.

For example, umbrella insurance may pay for legal fees and damages if someone accuses you of slander (a false spoken statement) or libel (a false written statement). A typical homeowners insurance policy doesn’t offer this coverage.

Umbrella and excess liability policies vary from one company to another. If you’re confused about your coverage, reach out to your insurance company or agent.

Key terms in this article


Anything you own that has financial value is an asset. Examples include bank accounts, stocks, your house and your car. If you have to pay damages after someone sues you, your assets could be at risk.

Legal damages

If you're found to be at fault (or "liable") for someone else's injuries or property damage, you may need to pay damages to that person. Damages are an amount of money that compensates someone else for what they lost. Damages could pay for things like medical bills, lost wages and property repairs.

Liability insurance

Liability insurance is a type of coverage that protects you financially in case of a lawsuit or claim against you. It will pay to defend you if someone sues you for injuring them or damaging their property. It's a standard part of most homeowners, auto, renters, condo and manufactured home policies.

How umbrella insurance works

Umbrella insurance offers extra liability coverage if you exhaust the limit on an underlying policy. Here’s an example of how it could work:

You run a red light and T-bone another car. There's significant damage to the vehicle, and several people are injured. The car needs $25,000 in repairs, and treatment of the injuries totals $275,000. Plus, the driver of the other car is an orthodontist who won’t be able to work for months due to a broken arm. She sues you for $200,000 in lost earnings.

You’re on the hook for a total of $500,000. If you carry only $300,000 in liability coverage with your car insurance, the remaining $200,000 will have to come out of your pocket.

If you had umbrella insurance, it would pay the difference between what your primary insurance covers and what you still owe. An umbrella policy could also cover your legal costs in the lawsuit.

» MORE: Liability car insurance: What it covers and how it works

What does umbrella insurance cover?

Depending on your policy, umbrella insurance can cover you and members of your household against claims or lawsuits for things like:

In addition to paying damages up to your liability limit, your umbrella insurance will typically also cover associated legal costs beyond that amount. Say you have an umbrella policy with $1 million of liability coverage, and someone sues you for that full amount. If a court finds you liable, your insurer could pay the $1 million plus provide your legal defense.

Did you know...

You might have to pay a "retained limit," which is similar to a deductible. It’s an amount you’ll have to cover before your policy begins to pay.

Details and exclusions can vary significantly between umbrella policies, but here are a few sample scenarios that would often be covered:

  • Your teenage son gets into a car accident, and the cost of injuries to other drivers is above your auto insurance liability limit.

  • A houseguest falls down your stairs and sues you for her medical bills plus pain and suffering, exceeding your homeowners insurance liability limit.

  • A restaurant sues you for writing a negative review online.

» MORE: What is personal liability insurance for homeowners?

What umbrella insurance doesn’t cover

Umbrella insurance doesn’t cover your own injuries or property damage — you’ll need other types of coverage for that (such as health insurance or collision coverage on your auto insurance). Nor will it cover liability associated with your business unless you have a business umbrella policy rather than a personal one.

Most umbrella insurance policies won’t cover liability stemming from the breach of a contract you’ve entered into. Say a roofing company sues you because you haven’t paid for the work it’s done under the contract you signed. Your umbrella insurance policy is unlikely to help. And if you hurt someone deliberately or commit a crime, you’re almost certainly not covered.

Boats are another common area of exclusion. Some companies cover certain sizes or types of watercraft only. Others don’t cover them at all unless you have an existing boat insurance policy.

Umbrella insurance usually covers

Umbrella insurance usually doesn't cover

  • Others' injury treatment and funeral costs.

  • Others' property damage.

  • Lawsuits involving slander, libel, defamation of character and other personal attacks.

  • Your legal defense costs.

  • Your tenant’s injuries or property damage if you're a landlord.

  • Your own injuries.

  • Damage to your personal belongings.

  • Injuries or property damage that your business is responsible for.

  • Intentional or criminal acts.

  • Liability associated with contracts you’ve entered into.

Who needs umbrella insurance?

There’s no law requiring you to buy umbrella insurance. But if you have a lot of assets or a high chance of being sued, you might want an umbrella policy. It might be worth buying umbrella insurance coverage if you:

  • Own property.

  • Have significant savings or other assets.

  • Are worried about liability claims against you when traveling outside the U.S.

  • Own things that can lead to injury lawsuits such as pools, trampolines, guns or dogs. (Check with your insurer to make sure the policy covers your dog’s breed.)

  • Are a landlord.

  • Have an inexperienced driver in your household.

  • Coach kids’ sports.

  • Often host parties in your home.

  • Serve on the board of a nonprofit.

  • Regularly post reviews of products and businesses.

  • Take part in sports where you could easily injure others (such as hunting, skiing or surfing).

  • Are a public figure.

Umbrella Insurance: Coverage & How It Works (2024 Guide) - NerdWallet (2)

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How much umbrella insurance do you need?

It’s wise to have at least enough liability insurance to cover your assets. To decide how much umbrella insurance coverage you need, add up the value of your property, savings and investment accounts. Then, take a look at the liability insurance you already have through your existing policies and buy enough umbrella insurance to make up the difference.

🤓Nerdy Tip

You may also want to consider potential income if you’re likely to earn much more in the future than you do now — if you’re a medical student, for example.

When considering potential lawsuits, keep in mind that employer-sponsored retirement accounts such as 401(k)s are protected from most lawsuits under the federal Employee Retirement Income Security Act of 1974. IRAs aren't, except for funds rolled over from an employer-sponsored account.

However, state laws may offer some protection for your IRA accounts and the equity you have in your home. Check your local laws before deciding how much umbrella insurance you need.

Insurers typically sell umbrella insurance in million-dollar increments. This means the cheapest policy available provides $1 million in coverage, the next-cheapest policy offers $2 million in coverage, and so on — so you get a decent amount no matter what you choose.

» MORE: The best financial advisors to grow your assets

How much does umbrella insurance cost?

The cost of an umbrella policy starts around $200 per year, with an average cost of about $380 for $1 million of coverage, according to Trusted Choice, a network of independent insurance agents. With its high coverage limit, umbrella insurance generally offers good value for the cost. However, you may also end up paying more for your other insurance policies if you need to increase your liability coverage to meet the minimum limits required for umbrella insurance.

How to get umbrella insurance

Your first step is to call your existing insurer. If you’ve already got homeowners and auto coverage with a certain company, see how much it would cost to add umbrella insurance on top of those policies.

That said, it’s always a good idea to shop around. Consider getting quotes from at least two other insurers to make sure you’re getting the best combination of coverage and price. An independent insurance agent can shop around on your behalf.

Learn how to find the best umbrella insurance.

Bottom line: Is umbrella insurance worth it?

If no one ever sues you or files a large liability claim against you, you could end up paying thousands of dollars for umbrella insurance without any benefit. But if you do need the coverage, it could save you $1 million or more and keep you from losing your home and investments.

Not everyone needs umbrella insurance. But for those with significant assets or a high lawsuit risk, it can offer both financial protection and peace of mind.


Provides extra liability coverage and legal defense costs once the limits of your auto, home or other underlying policies have been exhausted.

Covers incidents that your main insurance might not, such as libel and slander.

The cost is relatively low compared to the potential payout.

Coverage often applies anywhere in the world.

May cover certain rental items for which you don't have insurance, such as a boat.


You must already carry auto or property insurance, usually homeowners, to qualify.

You may need to have the umbrella policy and all underlying insurance with the same company. This reduces your ability to shop around for better rates on individual policies.

Your total premium costs may go up if you need to add extra liability coverage to your existing policies. (You typically need a minimum amount of liability insurance on underlying policies in order to add umbrella coverage.)

Frequently asked questions

Can I buy umbrella insurance separately?

Umbrella insurance is an individual policy you can buy to supplement other policies such as auto and homeowners insurance. While a handful of insurance companies sell stand-alone umbrella policies, most require you to buy at least one of your underlying policies from them as well.

Does umbrella insurance cover property damage?

Umbrella insurance generally covers you if you’re responsible for damaging other people’s property, but it won’t pay for damage to your own belongings. Say you get into an accident and cause more damage to other vehicles than your auto liability coverage will pay. Your umbrella policy would make up that difference — but it wouldn’t pay for repairs to your own car.

Does umbrella insurance cover dog bites?

Yes, umbrella insurance may offer liability coverage if your dog bites someone. Normally, a dog bite claim would fall under the personal liability section of your homeowners, condo or renters insurance. But if the amount of the claim is more than your liability limit, an umbrella policy can help make up the difference. Note that some insurers won’t cover certain dog breeds.

Learn more about dog liability insurance.

Can I get umbrella insurance after an accident?

You can get umbrella insurance at any time, but it won’t offer coverage for incidents that happened before you bought the policy. So you can’t get into an expensive car accident one day, buy umbrella insurance the next day and expect the new policy to pay your liability costs.

Do retirees need an umbrella insurance policy?

At any age or life stage, you should consider the value of your assets and your risk of a lawsuit when deciding whether you need umbrella insurance. For example, retirees may own a pricey vacation home or enjoy potentially risky hobbies such as boating, either of which may make an umbrella policy a good idea. Because vision and reaction time can change with age, some older drivers may also appreciate having extra liability coverage in case of a car accident.

Umbrella Insurance: Coverage & How It Works (2024 Guide) - NerdWallet (2024)


What is the rule of thumb for umbrella insurance? ›

The amount of your umbrella insurance policy should match your entire net worth. So if your assets stand at $1 million—bingo. That's how much umbrella insurance you need.

How does umbrella coverage work? ›

Umbrella insurance generally covers you if you're responsible for damaging other people's property, but it won't pay for damage to your own belongings. Say you get into an accident and cause more damage to other vehicles than your auto liability coverage will pay.

What are the disadvantages of the umbrella policy? ›

What are the disadvantages of the umbrella policy? While umbrella insurance offers extensive coverage, it doesn't cover personal injuries or property, business losses, and intentional or criminal acts.

What is the typical coverage amount for an umbrella policy? ›

The cost of umbrella insurance will also vary based on how much coverage you purchase. Most insurers offer umbrella policies in the range of $1 to $5 million, but some offer limits of up to $10 million. On average, $1 million in umbrella coverage costs approximately $400 a year.

What is not covered under an umbrella insurance policy? ›

Basically, umbrella insurance never covers your own costs. It only helps cover expenses if you are sued for damages and are found at-fault. It also won't cover anything that is not included in your coverage, like criminal activity or exclusions listed in the policy.

How much does a $1 million umbrella policy cost? ›

According to an ACE Private Risk Services report noted by Forbes, the average cost a $1 million personal umbrella policy is $383 per year for an individual with one home, two cars, and two drivers. If you need more than $1 million in liability coverage, your policy's cost will increase.

Does umbrella insurance cover medical expenses? ›

Just like your car liability insurance doesn't cover damage to your own vehicle, your umbrella insurance policy doesn't cover the cost of repairing your own property or paying for your medical bills, nor does it cover injuries to you or other members of your household.

Is umbrella coverage worth it? ›

Is umbrella insurance worth it? If you have significant assets, it's worth getting an umbrella policy. The liability insurance within your auto and homeowners insurance policies might not be sufficient if you get sued for an incident such as a dog bite, car accident or accidental injury to someone else.

Do retirees need an umbrella insurance policy? ›

Retirees often rely on their accumulated savings to fund their lifestyle during retirement. An unexpected lawsuit or liability claim could jeopardize these savings. Umbrella insurance helps protect these assets by providing coverage beyond the limits of traditional policies.

What are the disadvantages of an umbrella? ›

We all know that the wind is no friend of the umbrella. Many times an umbrella has fallen when the wind picks up and utterly destroys it. An umbrella is shaped in such a way that is could potentially put someone's eye out.

Who should have umbrella insurance? ›

Standard homeowners and auto policies typically won't offer more than $500,000 in liability coverage, which means you may need an umbrella insurance policy to fully protect your assets if your net worth exceeds $500,000.

What is an umbrella policy example? ›

Property damage coverage on an umbrella policy can help cover damage you cause in an auto accident or to someone else's property – like, for instance, if your kid's stray ball breaks a neighbor's window. These repairs would exceed the limits of your typical auto or homeowners insurance policy.

What percentage of people have an umbrella insurance policy? ›

Oftentimes, customers don't know exactly what benefits the umbrella policy provides. In fact, only about 20% of homeowners carry an umbrella policy 1. Many that do are sold a $1 million policy though their assets and earnings greatly exceed that number. What makes this coverage such an enigma?

Why is my umbrella policy so expensive? ›

The cost of an umbrella liability policy depends on how much coverage you purchase, the state where you live (insurance rates vary by state) and the risk that insuring you presents to the insurance company. The more homes or cars you own, and the more household members your policy must cover, the more it will cost.

Is state farm umbrella policy worth it? ›

State Farm's umbrella policies are a good choice for customers with a high net worth who want extra coverage for property damage, injuries, and possible lawsuits that could result from various types of incidents.

Is $2 million enough for umbrella policy? ›

Having this kind of lifestyle puts you at a higher risk than the average. The best umbrella insurance policy to get with this kind of lifestyle is one that offers at least $1 million of coverage. If you have a booming career or business, you can even get umbrella liability insurance with $2 million coverage.

How much does a $5 million dollar commercial umbrella policy cost? ›

Umbrella insurance is not a standalone coverage, and therefore, it can only be purchased on top of a general liability, employer liability, or commercial auto insurance plan. On average, commercial umbrella insurance costs about $75 per month for each $1 million of additional coverage.

What is the standard deductible on an umbrella policy? ›

Once you pay your primary policy deductible (auto or homeowners), you won't have to pay it again. But there can be exceptions to this—some policies have a small umbrella deductible, known as self-insured retention, that's normally in the range of $250–500.

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