How Much Umbrella Insurance Do You Need?

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

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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.

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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.

Patricia Mertz Esswein
Contributing Writer, Kiplinger's Personal Finance
Esswein joined Kiplinger in May 1984 as director of special publications and managing editor of Kiplinger Books. In 2004, she began covering real estate for Kiplinger's Personal Finance, writing about the housing market, buying and selling a home, getting a mortgage, and home improvement. Prior to joining Kiplinger, Esswein wrote and edited for Empire Sports, a monthly magazine covering sports and recreation in upstate New York. She holds a BA degree from Gustavus Adolphus College, in St. Peter, Minn., and an MA in magazine journalism from the S.I. Newhouse School at Syracuse University.