Umbrella Insurance
Excess liability coverage extending beyond the limits of auto and homeowners insurance policies.
What is Umbrella Policy?
Umbrella insurance provides additional liability coverage — typically $1 million to $5 million or more — that activates once the liability limits of underlying auto or homeowners policies are exhausted. It covers not only bodily injury and property damage claims, but also personal liability exposures not covered by standard policies, including defamation, false arrest, and certain landlord liabilities. Umbrella coverage is relatively inexpensive (typically $200–$400 per year for $1 million in coverage) because it pays only after underlying coverage is depleted. It is most valuable for individuals with significant assets that could be targeted in a lawsuit, or those with high-risk exposures such as a teenage driver, swimming pool, or rental property.
Example
A homeowner's teenager causes a car accident resulting in $800,000 in injuries to another driver. The family's auto insurance policy covers $300,000 (their policy limit). The remaining $500,000 would come from the umbrella policy, protecting the family's home, investments, and future earnings from a lawsuit. Without the umbrella policy, the family could face wage garnishment and forced asset sales. A $1 million umbrella policy costs approximately $300/year.