Understanding Umbrella Insurance

Understanding Umbrella Insurance

April 07, 2022

Liability lawsuits are unpredictable. Juries are increasingly giving outsized awards to plaintiffs, and about any accident can become prey to unscrupulous – even manufactured – claims of severe injury. While homeowners and personal auto insurance carry liability protection, they are not designed to handle a big claim, such as permanent disability. 

If you lose a lawsuit that results in a judgment amount that is larger than your insurance policy covers, the remainder will have to be paid out of pocket. Would you have to dip into savings, retirement accounts, your home’s equity or money set aside for college tuition? Do you want to pay the remainder for the rest of your life?  

A personal umbrella insurance policy is designed to protect you from such over-the-top financial losses. 

Understanding Umbrella Insurance

Key Takeaways


  • Umbrella insurance is a type of insurance that adds extra liability coverage on top of another insurance policy.

  • Alongside yourself, umbrella insurance can cover the other members in your household. 

  • Umbrella insurance covers damage of others’ property and injury to others.  It does not protect your own property, nor does it protect work liabilities.

  • Umbrella insurance is very affordable compared to other forms of coverage.


What is personal umbrella insurance?  

Personal umbrella insurance is a type of insurance designed to add extra liability coverage over and above another insurance policy, such as auto or homeowners' insurance. It acts as an umbrella to your other policies.  

Personal umbrella insurance covers not only the individual but other household members, too.  

Here is an example, let us say you are in a car accident where you are found at fault. The other driver’s injuries are severe, and he sues you for $1M. Your auto insurance only covers $250,000 in damages. Where is the other $750,000 going to come from? That is when your umbrella policy kicks and covers the remainder.  

Or, you have a teenager in the house, and you are going out of town and leaving them at home. They have promised to be on their best behavior and have only one friend over. One friend turns twenty, and the next thing unbeknownst to you, your house is the place to be on a Friday night. Someone brings alcohol to the party, or even worse, they get into your liquor cabinet. One of the attendees gets alcohol poisoning and is rushed to the hospital. The parents decide to sue you. Your umbrella policy would cover these expenses. 

Who needs an umbrella policy? 

If you engage in some activity that puts you at greater risk of incurring excess liability, you are an even better candidate for an umbrella policy.  

Personal liability risk factors include: 

  • owning property and renting it out 
  • employing household staff 
  • having a trampoline hot tub, or pool 
  • hosting large parties, 
  • being a well-known public figure 
  • coaching children’s sports 
  • having a teenage driver in the home 

In short, the more likely you are to be sued, the more likely you should have an umbrella policy.  

What is covered in an umbrella policy?  

  • Settlements from accidents happening in your own home or pool. 

  • Judgements from defamation. 

  • Medical expenses or damages if a visitor is injured while visiting your home. 

  • Damage that you cause to someone else’s property or car. 

What is not covered in an umbrella policy? 

  • Business losses 

  • Contract disputes 

  • Personal belongings 

  • Criminal or intentional acts 

How much does an umbrella policy cost? 

Just like with any other insurance, the amount of coverage you have will play a factor in price. Also, the state where you live and the risk you present to the insurance company come into play. The more you must cover, the more it will go up. If you have multiple homes, cars, and a large household, your policy will be higher than someone who is single and owns one home and has a dog. 

With all that being said, umbrella insurance is still very affordable for great additional coverage. $1M policies typically cost about $150- $300 per year. That is a small price to pay for some additional peace of mind.  

Interested in learning more? Reach out to Samantha Vaught today.