How Much Umbrella Insurance Do I Need?

An umbrella insurance policy typically covers the same things as your home and auto policies, plus more. It provides protection outside of existing limits and coverages, covering anything from lawsuits that arise when you're driving abroad or operating rented watercraft, harm caused to others by your dog, or if you're sued for alleged libel, slander or defamation of character. 

Umbrella coverage picks up where the liability limits of your homeowners and auto policies leave off, and it's usually sold in increments of $1 million. The cost of umbrella insurance can range anywhere from $200 on the low end to over $1,000 for a high limit, depending on where you live (rates vary by state and the insurer's experience there), how many homes, cars and boats you're insuring, as well as how much coverage you purchase. However, an average cost of about $380 per year can provide $1 to $2 million of protection, according to Trusted Choice. 

Use this calculator to assess how much umbrella insurance coverage you need. 

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What does umbrella insurance cover?

Most umbrella insurance policies offer coverage for the following:

• Bodily injury: If you are found liable for injuries that you cause others, whether it's from an at-fault auto accident or an accident in your home, umbrella insurance can help cover these costs.
• Property damage: Umbrella insurance can help cover damage you do to another's property if the damage exceeds your underlying policy limits.
• Lawsuits: If you are involved in a lawsuit for slander, libel, defamation of character and other personal attacks, umbrella insurance can provide coverage for legal expenses. 
• Landlord liability: In some cases, if you own a home and rent it out, you could be found liable for injuries that occur there. For example, if a tenant trips and gets injured. If your landlord policy reaches it's limit, umbrella insurance can provide additional coverage. 

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. 

Also, If you serve as a volunteer on a not-for-profit board, your homeowners and umbrella policies typically cover you for bodily injury and property damage—but probably not for all potential lawsuits. 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.

Buying an umbrella insurance policy

Before most insurers will sell you an umbrella insurance policy, you must buy your homeowners or auto policy from them and carry a minimum amount of liability coverage — typically $300,000 on your homeowners policy and, on your auto insurance, $250,000 for bodily injury to one person and $500,000 per accident, says the Insurance Information Institute (III). 

Most insurers cap the home and auto liability coverage they will sell you at $500,000 or $1 million. It's usually more cost-effective to buy an umbrella policy than to increase your liability coverage beyond the minimum required by your insurer.

If you buy your home and auto insurance from the same insurer, you'll typically get a discount of 10% to 15% on your annual premiums, and you may get an additional discount on the umbrella policy. You can offset at least some of the umbrella premium by taking larger deductibles on your auto and home insurance policies. 

With a single insurer, your coverage is less likely to fall through the cracks if the requirements for the umbrella policy change. And if you're sued, you'll have one set of defense lawyers for the entire case. Otherwise, agents advise you to buy the umbrella policy from your auto insurer because most large lawsuits involve auto accidents.

If your current home or auto insurer won’t sell you an umbrella policy — because your dog's breed is reputed to have a bad claims history, for example, or your family has had too many fender benders — ask an independent agent who represents multiple insurers to help you find a "stand-alone" umbrella policy.

Should I purchase an umbrella insurance policy? 

In some cases, it makes more sense to purchase an umbrella insurance policy, especially if you have a lot of assets or a high chance of being sued. According to the III, you should purchase an umbrella insurance policy if certain activities and lifestyle risks that can attract the risk of someone suing you, such as:

• Owning a swimming pool and having pool parties
• Renting out a property you own
• Having a dog or a teenage driver in the house

You should also consider opening an umbrella a policy if you:

• Are a landlord
• Own property.
• Have significant savings/assets
• Want protection for liability claims against you when traveling outside the U.S.
• Coach kids’ sports.
• Often host parties in your home.
• Take part in sports where you could easily injure others - hunting, skiing or surfing
• Are a public figure

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