An umbrella policy is liability coverage that sits on top of your auto and home insurance. When someone is seriously injured in your car, on your property or by your dog, and the lawsuit exceeds the liability limit on the underlying policy, the umbrella pays the difference. Most homeowners have never been offered one. It is the cheapest large coverage in insurance, and it protects against the one event that can actually take a family's savings: a judgment bigger than the policy.
What it costs
A $1 million umbrella typically runs $150 to $300 a year for a household with two cars and a house. Each additional million is usually cheaper than the first. Ours is $190 a year for $1 million, through the same company that writes our auto policy.
There is a catch that adds a little to the cost: most insurers require the underlying auto and home liability limits to be raised first, commonly to $250,000 per person and $500,000 per accident on the auto policy, and $300,000 on the home policy. Raising ours added about $80 a year. So the real cost of the umbrella was closer to $270.
What it covers
- Bodily injury and property damage you or a household member cause, above the underlying limits. A serious car accident with a permanently injured passenger is the textbook case.
- Incidents the underlying policies do not cover at all: libel, slander, some landlord liability, and injuries on a rental property in some policies.
- Legal defense costs, which can be large even when you win.
It does not cover your own injuries, your own property, business activities, or intentional acts.
Who actually needs one
The old advice was that umbrellas are for wealthy people with assets to protect. That is backwards. A judgment above your policy limits can attach to future wages, not just current assets, and a young family with a mortgage and a modest savings account has more years of income to lose than a retiree. The clearer signals are about exposure rather than wealth:
- A teenage driver in the house.
- A dog, particularly a large one.
- A pool, a trampoline, a boat or an ATV.
- A rental property or regular guests.
- A long commute or a lot of driving with children in the car.
If two or more of those apply, the umbrella is worth the premium several times over.
How to buy one
Start with the company that writes your auto policy; most require the umbrella to sit above a policy they also write, and the bundle is simpler in a claim. Ask specifically what underlying limits they require and what the total cost is including those increases. Then get one competing quote for the whole package. The prices vary less than for auto and home, but they vary.
The way to think about it
You are paying about the cost of one restaurant dinner a month for coverage against the lawsuit you cannot imagine, which is precisely the one that would take everything. Most people who own an umbrella never use it. That is what it is for.
