Umbrella Insurance: What Is It, And Do We Really Need It?


What Exactly Does Umbrella Insurance Cover?

We’ve all experienced it: The constant drip, drip, drip of worry that comes with wondering if you have enough insurance coverage should the unexpected happen. That’s where umbrella insurance comes in. Also called excess personal liability insurance, umbrella insurance sits on top of your automobile, homeowners, and watercraft liability coverage. So that’s what it is — but what does it do?

If you injure someone in a car accident or someone slips and falls in your house or on your property, your auto or home insurer will pay for damages up to the liability limits of your coverage. But if the damages exceed those limits, the injured party could sue you for the difference. If you’re found to be at fault, an umbrella policy will pay a judgment or settlement, and will even pay for your defense if you’re not found at fault.

Generally sold in increments of $1 million, umbrella insurance costs approximately $150 to $350 a year for the first $1 million of coverage and about $100 per million of coverage above that. Insurance rates vary by state by how many homes, boats, or cars you’re insuring.

If you’re interested in purchasing umbrella insurance, most insurers will sell you a policy only if you buy your homeowners or auto policy from them and carry the minimum amount of liability coverage. The Insurance Information Institute reports that the minimum amount of liability coverage is typically $300,000 for homeowners insurance, $250,000 for bodily injury to one person, and $500,000 per accident.

According to Spencer Houldin, president of Ericson Insurance Advisors, in Washington Depot, Connecticut, a car accident is the most likely scenario where a loss would trigger excess liability coverage in cases where a permanent disability or a fatality could result in a large judgment. You also might want to consider umbrella insurance if you own a condo, as you could be held responsible for damage to other units — maybe even the entire building if a fire or water problem originates in your unit. Other situations where you might want to consider the benefits of umbrella insurance: if you employ domestic workers; if you own a swimming pool, dog, boat, RV, snowmobile, or trampoline; or if you’re at risk for increased liability because you serve on the board of your homeowners or condo association.

In addition, consider adding an endorsement to an umbrella policy specifically for excess uninsured/underinsured motorist coverage. The added insurance will cover you not only as a driver but also as a bicyclist, pedestrian, or car passenger if you’re hit and injured, and the at-fault party doesn’t carry enough insurance.


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Sandra Murphy

Sandra Murphy

Holds a master's degree in professional writing and has more than 15 years of experience writing for national and international entities.

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