Umbrella Liability Policy

Umbrella Insurance

What is umbrella insurance, and how do I know if I need it?

An umbrella policy was created to provide additional coverage when a lawsuit brought over injuries and/or property damage that you cause exceeds the liability limits on your car insurance, home insurance, boat insurance, etc.

Protection Beyond the Usual

While its easy to assume that only a rich person could need that much insurance coverage, you’d be surprised at how important an umbrella policy can be for an average member of the middle class. For instance, if you have a car insurance policy with liability coverage, you may think you have enough protection in case of an accident. But a lawsuit could quickly exceed the $100,000 or $300,000 insurance payout.

Although 85 percent of umbrella insurance claims are related to car accidents, the policies offer protection against accidents that occur at your home, too — for example, in case someone falls down your stairs and sues you, or your balcony collapses during a party. Many people opt for an umbrella policy because they have a pool or a trampoline on their property and fear the consequences of a child getting injured.

Being Prepared

Then there’s coverage for incidents you may not have even considered, such as accidents while you’re driving in another country, or while you’re on vacation and have rented a boat or Jet Ski.

An umbrella policy has three advantages. It provides additional lawsuit coverage of $1 million or more. It provides added coverage for defense costs, which can easily amount to $100,000 or more. And finally, it provides liability coverage for some lawsuits not covered by your underlying auto or home insurance. Examples include if you’re sued over an incident involving a boat you rented on vacation, a car you rented in Europe, or even your work on a nonprofit board of directors.

Everyone concerned about losing income or assets in one large lawsuit needs an umbrella policy. An umbrella insurance policy is the absolute best buy in the insurance business. It costs only about $150 to $200 for the first $1 million of coverage, then about $100 for each additional $1 million.

You can’t control whom you might injure. If you injure, for example, the CEO of a large corporation, a professional baseball player or a doctor, you would owe for lost wages, medical bills, and pain and suffering. The lost wages alone for those types of people, if they can’t work for 10 years, could start anywhere from $2 million to $3 million and run up to as much as 10 times that amount. Medical bills might be about $500,000. And then, there is compensation for pain and suffering.

Defamation and Slander

Another important feature of these policies is protection in a lawsuit against you for slander or defamation of character, or for decisions you might have made as a volunteer member of a nonprofit board. If you regularly blog about controversial topics or rant on Facebook, an umbrella policy just might be a good idea to protect your assets from a litigious individual who believes you’ve damaged their reputation.

That may sound unlikely, but it’s not unheard of. In 2009, a high school student sued 4 other students and their families for $3 million because of derogatory comments the other students made about her on Facebook. While the lawsuit was eventually dismissed, reaching that verdict took two years and required considerable expenditures by the families. An umbrella policy can cover expenses related to such lawsuits.


The point is that you can’t be overinsured for lawsuits.

Insurance companies require specific levels of liability coverage on your auto and home insurance policies before they will approve an umbrella policy, typically:
$300,000 per occurrence for personal liability, bodily injury, and property damage liability on your homeowners insurance policy
$250,000 per person for bodily injury and $500,000 per accident on your car insurance policy
$100,000 per accident for property damage on your car insurance policy
The average cost for a $1 million policy is $200 annually — which you might find a relatively low price for the peace of mind and security it offers.

When buying an umbrella insurance policy, buy $1 million more than you think you will need.