How Much Umbrella Insurance Do You Need?

Having too much liability insurance is better than having too little. And it’s affordable.

We never dreamed that a short story about umbrella insurance would be the top-ranked article in our monthly reader survey, but that’s exactly what happened when we tackled the topic in July 2018. The article also generated plenty of reader mail. Many of you wrote to ask us to revisit the topic and help you determine how much umbrella coverage you need—and to do just that, we’ve developed a tool you can use.

Umbrella insurance—also known as excess personal liability insurance—sits on top of your auto­mobile, homeowners and watercraft liability coverage. If you injure someone in a car accident or someone slips and falls on your property, your auto or home insurer will pay for damages up to the liability limits of your coverage. If the damages exceed those limits, the injured party may sue you for the difference. An umbrella policy will pay a judgment or settlement if you’re found to be at fault, and will pay for your defense even if you’re not found at fault.

Umbrella insurance is generally sold in increments of $1 million. It costs roughly $150 to $350 a year for the first $1 million of coverage and about $100 per million of coverage above that. What you'll actually pay depends on where you live (rates vary by state and the insurer's experience there) and how many homes, cars and boats you're insuring. Most insurers will sell you an umbrella policy only if you buy your homeowners or auto policy from them and carry a minimum amount of liability coverage—typically $300,000 for homeowners insurance and, for auto insurance, $250,000 for bodily injury to one person and $500,000 per accident, says the Insurance Information Institute.

Assess your risk. A car accident is the most likely scenario in which a loss would trigger excess liability coverage because a permanent disability or fatality could easily result in a large judgment, says Spencer Houldin, president of Ericson Insurance Advisors, in Washington Depot, Conn. Your risk is higher the more you drive and if you insure teen or elderly drivers.

If you own a condo, you could be held responsible for damage to other units or even the entire building if a fire or water problem starts in your unit. You may also be at higher risk if you employ domestic workers or own a swimming pool or trampoline, a dog, or a boat, RV or snowmobile. You are more vulnerable to a lawsuit if you’re active on social media or serve on the board of your homeowners or condo association or a nonprofit organization. If you checked just one of the risk factors listed above, you may need umbrella coverage, says Chubb Insurance. If you selected several, your liability risk is higher than average.

Consider adding an endorsement to an umbrella policy for excess uninsured/underinsured motorist coverage, which covers you not only as a driver but as a passenger, bicyclist or pedestrian if you’re hit and the at-fault driver doesn’t carry enough insurance. It costs $100 to $200 per policy.

If you serve as a volunteer on a nonprofit board, your homeowners and umbrella policies typically cover you for bodily injury and property damage—but probably not for all potential lawsuits, says Houldin. An endorsement for your umbrella policy for directors and officers coverage typically costs less than $1,000 a year for $1 million to $2 million of coverage.

Most Popular

How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!
estate planning

How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!

Upstream basis planning is a trust strategy that can save wealthy people on their capital gains taxes and income taxes associated with highly apprecia…
July 3, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
5 Ways to Prepare for a Recession

5 Ways to Prepare for a Recession

The signs seem to be pointing in one direction these days, so if you’re worried about being ready for a recession, consider taking these five measures…
June 28, 2022


Financial Advice from America’s Founding Fathers
credit & debt

Financial Advice from America’s Founding Fathers

What money-management guidance can we glean from the words — and experience — of Benjamin Franklin, Thomas Jefferson, Alexander Hamilton and others?
June 30, 2022
Homeowners Insurance: How to Protect Your Home
Brandon Copeland

Homeowners Insurance: How to Protect Your Home

NFL linebacker and Kiplinger contributing editor Brandon Copeland discusses the ins and outs of homeowners insurance.
June 8, 2022
Beneficiary Designations: 5 Critical Mistakes to Avoid

Beneficiary Designations: 5 Critical Mistakes to Avoid

You may be surprised at how easy it is to make an expensive mistake with your beneficiary designations. Here's how to help avoid the five most common …
June 6, 2022
30 Best Kirkland Products You Should Buy at Costco

30 Best Kirkland Products You Should Buy at Costco

Many of warehouse club Costco's store-branded Kirkland Signature items get high marks for quality and value. Check out our picks.
June 3, 2022