What is Umbrella Insurance?

What is umbrella insurance, how does it protect you and is it something you should have as part of your insurance coverage?

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Kristine Lee

Insurance Analyst

  • Licensed Insurance Agent — Property and Casualty
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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…

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Beth Swanson

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Beth joined The Zebra in 2022 as an Associate Content Strategist. She is a licensed insurance agent whose goal is to make insurance content easy to r…

What is umbrella insurance?

Umbrella insurance protects your assests if you find yourself underinsured.

The purpose of being insured is to protect you and your assets against as many potential risks as possible. While most P&C policies include liability insurance, you may find that your policy limits are insufficient to protect all of your assets. Unfortunately, accidents happen when you least expect them, but a personal umbrella insurance policy can keep you from being underinsured when you can least afford it.

Umbrella insurance works in conjunction with your auto and/or homeowners insurance policy to provide additional liability coverage if you happen to exceed the limit of the underlying policy. Say that you have an auto policy with liability limits of $250,000, you injure someone in an accident where you are considered at fault, and the other person’s injuries total $400,000. If your coverage maxed out at $250,000, you would be on the hook for an additional $150,000 worth of injuries, which could be disastrous.

Since umbrella insurance policies provide coverage incrementally from $1M to $5M in the above example, you would not have to pay the extra $150,000 out of pocket. Considering umbrella policies are fairly inexpensive, it’s easy to see the value of adding this coverage to protect your assets from a lawsuit resulting from being underinsured after an accident.

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How an umbrella policy works

Like all insurance, you don't want to use your personal umbrella coverage. However, if you find yourself exceeding your primary coverage’s liability limits, you’ll be thankful for it. Umbrella policies can be applied to multiple underlying policies, meaning it can kick in for both your car and homeowners insurance. 

To purchase a personal umbrella policy, you must have an underlying homeowners or car insurance policy that meets a certain minimum amount of liability coverage. As such, you may be required to increase your current liability limits in order to be eligible. If your underlying policy lapsed or you lowered your liability limits below these limits, your umbrella policy would still only kick after you paid the maximum liability coverage.

For instance, you may have a $1 million umbrella policy that requires your underlying car insurance policy to have a liability limit of at least $250,000. If you drop that limit to $150,000 and cause a car accident with $500,000 of damages, you would be responsible for making up the $100,000 difference before your umbrella policy kicks in. As such, it’s important to keep your underlying policy — be it homeowners, car, or otherwise — up to date and at the required limit.

What does an umbrella policy cover? 

Find below some instances in which an umbrella policy can help. 

Bodily injury
Bodily injury

If someone is injured as a result of your actions — or while they are on your property — an umbrella policy can step in should your original liability limits be exhausted. This will go to pay for their injuries or funeral expenses. Coverage extends to anyone harmed by the policyholder, but most often includes:

  • Those injured in a car accident for which the policyholder is at fault
  • Those injured on property owned by the policyholder
  • Those injured by the policyholder's pet
single family home
Property damage

An umbrella policy is useful in covering the loss or damage of property due to the policyholder’s actions. This can cover things like damage to vehicles or accidental damage caused by the policyholder to another person’s home or property. 

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Other actions of which the policyholder is guilty

There are many other actions for which you can be held accountable. Luckily, your umbrella policy is available to help cover the following:

  • Libel
  • Slander and defamation
  • False arrest or imprisonment
  • Shock or mental anguish
  • Malicious prosecution 

Who should purchase an Umbrella policy?

It never hurts to bolster your current liability coverage, especially for those with considerable assets to protect. Homeowners — especially those with "attractive nuisances" — may benefit from an umbrella policy. These attractive nuisances include pools, playground equipment, and trampolines, or anything else that could draw trespassers or other unwanted visitors to your property and potentially result in their injury. 

Should someone suffer a serious injury on your property, your homeowners insurance liability can be exhausted quickly. Umbrella insurance provides a safety net to protect you and your assets. 

Others who may benefit from an umbrella policy include:

  • Volunteers
  • Athletes 
  • Coaches
  • Hunters and other sportsmen and women
  • Business owners
  • Owners of certain breeds of dogs
  • Landlords


It's important to remember that if you are found liable for harming another party, you might not only be responsible for covering their hospital bills and property repair costs. Other potential damages include lost earnings or mental anguish, which can quickly surpass your original liability limits. If you have considerable assets, they could be at risk. An umbrella policy helps protect your assets by providing additional coverage. 

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How much umbrella insurance do I need?

When purchasing your umbrella policy, one of the first things you need to consider is how much extra coverage do you need. This will be different for everyone. Put simply, the more assets you have, the more coverage you may need. You’ll want to consider things like your home equity, your retirement plans, and your overall net worth. 

How much does umbrella insurance coverage cost? 

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

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.

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