What is Umbrella Insurance?

Umbrella insurance is a low-cost way to safeguard your finances when your home or auto policy falls short.

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Kristine Lee

Insurance Analyst

Kristine is a licensed insurance agent who joined The Zebra in 2019 as an in-house content researcher and writer. Before joining The Zebra, she was a…

Credentials
  • Licensed Insurance Agent — Property and Casualty
  • 5+ years of Experience in the Insurance Industry
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Renata Balasco

Senior Content Strategist

Renata joined The Zebra in 2020 as a Customer Experience Agent. Since 2021, she has worked as licensed insurance professional and content strategist.…

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  • Licensed Insurance Agent — Property and Casualty
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Beth Swanson

Insurance Analyst

Beth joined The Zebra in 2022 as an Associate Content Strategist. A licensed insurance agent, she specializes in creating clear, accessible content t…

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  • Licensed Insurance Agent — Property and Casualty
  • Associate in Insurance

What is umbrella insurance?

Umbrella insurance provides an extra layer of liability protection beyond the limits of your existing home, auto, or renters insurance. It acts as a financial safeguard, ensuring you’re not left paying out of pocket if you’re found liable for damages that exceed your primary policy’s coverage.

While most standard insurance policies include some liability coverage, they may not be enough to fully protect your assets. If you’re underinsured in a serious accident or lawsuit, umbrella insurance can bridge the gap. For example, if you have an auto insurance policy with a $250,000 liability limit and cause an accident where the other driver’s medical bills total $400,000, you’d be responsible for the remaining $150,000. With umbrella insurance, that additional cost would be covered, preventing financial strain.

Unlike traditional umbrella policies that must be bundled with a home or auto policy from the same provider, standalone umbrella insurance can be purchased separately. This flexibility allows you to secure high-limit liability protection—even if your primary insurer doesn’t offer umbrella coverage. These policies typically provide coverage from $1 million to $5 million, ensuring broad financial protection at an affordable cost.

Considering the relatively low cost of umbrella insurance, it’s a smart investment for protecting your savings, home, and future income from the unexpected.

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How an umbrella policy works

Like all insurance, you hope you never need it—but if you exceed your policy’s liability limits, you’ll be glad you have it. Umbrella insurance extends coverage beyond your auto and homeowners policies, protecting you from major financial losses.

To qualify, you must have a homeowners or auto policy with minimum liability limits. If you lower those limits or let your policy lapse, you’ll have to cover the gap before your umbrella policy kicks in.

For example, if your umbrella policy requires a $250,000 auto liability limit but you only have $150,000, and you cause $500,000 in damages, you’d need to pay the $100,000 difference before your umbrella coverage applies.

Bottom line? Keep your primary policies active and at the required limits to get the full benefit of your umbrella insurance.


How much does umbrella insurance coverage cost?

Considering how much coverage it provides, umbrella insurance is surprisingly cheap.  Coverage can be increased in 1 million dollar increments for around $50 or $75 per tier, up to a limit of approximately $10 million.

One of the biggest misconceptions about umbrella insurance is that it’s expensive. However, the Insurance Information Institute (III) places the cost of a $1 million umbrella policy at between $150 and $300 per year, though this may vary from one company to another.The cost depends on factors such as coverage limits, personal risk factors, and the number of assets being protected. Given the high liability limits—often starting at $1 million—umbrella insurance provides significant financial security for a relatively low premium.


What does an umbrella policy cover? 

Umbrella insurance provides high-limit liability protection that extends beyond your standard home, auto, or renters insurance. It covers a range of scenarios where you could be held financially responsible for damages or legal claims.

Bodily injury
Bodily injury

If someone is injured due to your actions—whether in a car accident where you're at fault, on your property, or even by your pet—umbrella insurance can cover medical expenses and legal fees once your primary policy limits are exhausted.

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Property damage

Covers damage to another person’s property caused by your actions, such as an accident involving another vehicle, damage to someone’s home, or an incident involving rented equipment like boats or watercraft.

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Legal protection

Provides coverage for lawsuits related to libel, slander, false arrest, imprisonment, and landlord liability, ensuring you’re protected against personal liability claims that standard policies may not cover.

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Coverage limits

Umbrella policies typically start at $1 million in coverage and step in only after your primary insurance policy has reached its limit. This added layer of protection can safeguard your assets in the event of a costly lawsuit.

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Policy exclusions

While umbrella insurance covers a broad range of risks, it does not extend to high-risk activities, business-related liabilities, or illegal actions. Understanding your policy’s exclusions ensures you know exactly what protection you have.

How much umbrella insurance do I need?

Put simply, the more assets you have, the more coverage you may need. Any agent worth their salt should tell you that umbrella policy limits should equal or just exceed your entire net worth. You’ll want to consider things like your home equity, your retirement plans, and your overall net worth. 

Here are some factors that can help you determine what sort of umbrella policy to get:

  • Underlying liability limits: Determine your current car and homeowners insurance coverage to see how much additional protection you need.
  • Net worth: Calculate your total assets to choose the right coverage.
  • Risk exposure: Consider your lifestyle and career risks when selecting liability coverage.
  • Future income: Account for potential property purchases or salary increases when setting policy limits.

Who should purchase an Umbrella policy?

It never hurts to bolster your current liability coverage, especially for those with considerable assets to protect. Homeowners with "attractive nuisances" like pools, playgrounds, or trampolines face a higher risk of injuries on their property.  

Should someone suffer a serious injury on your property, your homeowners insurance can be exhausted quickly. An umbrella policy adds an extra layer of protection, keeping you and your assets safe from costly lawsuits.

Others who may benefit from an umbrella policy include:

  • Volunteers
  • Athletes 
  • Coaches
  • Public figures
  • Hunters and other sportsmen and women
  • Business owners
  • Owners of certain breeds of dogs
  • Landlords
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Common misconceptions about umbrella insurance

Umbrella policies can be a lifesaver in certain situations, but many people wonder if they really need one. Let’s clear up some common myths:

Myth Reality
"My standard policy already covers enough." Not quite. Home and auto insurance are essential, but their liability limits are much lower than an umbrella policy. In a major accident, you could max out your coverage fast.
"It’s too expensive." Actually, umbrella insurance is surprisingly affordable—typically $200 to $400 a year. That’s a small price for big protection.
"It’s only for the wealthy." Umbrella insurance isn’t just for the super-rich. It’s available to most people and is a smart move for anyone with assets to protect.
"You can’t have both traditional and umbrella insurance." You can—and should—have both. Just check that your policies work together for seamless coverage.
"It only covers expensive jewelry." Umbrella insurance covers extra liability, not personal property. For jewelry, check your renters or homeowners policy.

What to consider when purchasing an umbrella insurance policy

If you carry homeowners and car insurance through a single insurance company, you should first contact this company about setting up a liability umbrella policy. Otherwise, there are several stand-alone companies that can provide the inexpensive coverage you need.

While it's impossible to protect yourself against every risk, an umbrella insurance policy helps mitigate some of those risks and makes it less likely you could lose your home — or other high-dollar assets — because of a lawsuit. If shopping for umbrella insurance, remember to gather tailored quotes from multiple car insurance companies to ensure you get the best price.

Compare rates from top companies and find the right coverage for your needs.

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