Do You Need Umbrella Insurance?
Umbrella insurance can protect you from financially devastating events that aren't covered by other policies.


Insurance is supposed to shield you from significant financial losses in the event of a disaster, such as a fire, car accident, medical emergency or unexpected death. But sometimes, your insurance doesn’t go far enough or cover all of life’s misfortunes. For that, you may need umbrella insurance.
An umbrella insurance policy provides additional coverage outside the limits of other policies you have, along with certain expenses not typically included in your existing insurance policies. For example, umbrella insurance protects you if a guest in your home falls and sues you for damages, if you’re sued for libel or slander, or if you’re involved in a catastrophic car accident that seriously injures another person.
Circumstances that umbrella policies typically don’t cover include liability or damages related to your business, your personal belongings, or oral or written contracts.

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Peter Piotrowski, chief claims officer at insurance provider Hippo Insurance, says people who own potentially aggressive dogs or high-risk possessions, such as a swimming pool, should consider adding an umbrella policy. He also recommends purchasing umbrella insurance if you have teenage drivers, since they’re more likely to get involved in an accident that exceeds coverage provided by your existing car insurance. Additionally, umbrella insurance is a good idea if you have a high net worth — say, $500,000 or more — because individuals with a lot of assets are more likely to get sued, he says.
To qualify for an umbrella insurance policy, you must already have homeowners and auto coverage. In addition, you’ll usually need to have at least $250,000 of liability coverage on your car insurance policy and $300,000 of liability coverage on your homeowners policy, according to the Insurance Information Institute.
You may be able to get a discount on your policy if you bundle it with your car or home insurance, depending on the amount of umbrella insurance you purchase and your state of residence. If you’re shopping around for a stand-alone umbrella policy with a new insurer, you can comparison shop on websites such as ValuePenguin and The Zebra.
Calculating umbrella insurance coverage
Add up the value of all your assets, including the amount of equity in your home and the value of your brokerage and retirement accounts. Kiplinger provides a calculator you can use to estimate the amount of coverage you need.
The application process for umbrella insurance is similar to that for other types of coverage. You’ll need to submit info about your income, assets and existing insurance policy limits before gaining approval. The amount of insurance you need will vary depending on your location, age, credit history and other factors, says Divya Sangameshwar, insurance expert with ValuePenguin, a consumer website that provides insurance research and analysis.
Cost of umbrella insurance
Umbrella policies are usually sold in increments of $1 million of coverage, up to $5 million. Premiums for $1 million in umbrella coverage range from $150 to $350 a year, and annual premiums on policies of $2 million to $5 million can range from $650 to $1,000, Sangameshwar says. As is the case with other types of insurance, rising labor costs and an increase in catastrophic weather events have led insurers to raise umbrella insurance premiums. The number of umbrella insurance claims more than doubled between 2010 and 2020, and the size of payouts increased by 67%, according to Safeco Insurance, a division of Liberty Mutual.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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Ella Vincent is a personal finance writer who has written about credit, retirement, and employment issues. She has previously written for Motley Fool and Yahoo Finance. She enjoys going to concerts in her native Chicago and watching basketball.
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