Umbrella insurance: What it is & what it covers
Last updated: January 1
What does a personal umbrella insurance policy cover?
A personal umbrella policy, sometimes referred to as umbrella insurance, is meant to help protect you from large and potentially devastating liability claims or judgments. Personal umbrella coverage comes into play when your underlying liability limits (such as from a homeowners or auto insurance policy) have been reached.
What is typically covered by an umbrella insurance policy?
What is typically not covered by an umbrella insurance policy?
Intentional or criminal acts or omissions
Written or oral contracts
Who needs umbrella insurance?
Umbrella insurance can benefit almost anyone. That's because accidents that result in high costs can happen to anybody. An umbrella insurance policy can help prevent you from paying out of pocket for another person's medical or legal bills if you're found responsible. For instance, suppose you are found liable after a guest is injured while swimming in your pool or playing in your yard. Or, suppose you are found at fault for a car accident that injures another person. An umbrella insurance policy can help cover your resulting expenses in situations like this — up to your policy's limit.
Umbrella insurance also typically extends to other members of your household, such as your spouse, children and other relatives who live in your home and who do not have auto or property insurance in their own name. So, if your spouse causes a car accident or your teen is sued for posting a libelous comment online, your umbrella insurance policy may help protect them, as well.
Your agent can answer questions about who your policy may and may not cover.
Personal umbrella insurance policy in action
Here's an example of how a personal umbrella policy works: If you're at fault in a car accident that injures another driver, your regular auto insurance may cover the other driver up to the limit you selected, say $250,000. But, what happens if that limit is not enough to cover the other driver's resulting medical bills?
If the other driver's injuries are severe, you may be legally responsible for damages beyond the $250,000 your car insurance policy covers. And, if he sues you, your personal assets could be at stake. Imagine if that injured driver were a surgeon or another highly paid professional. What if the accident you caused resulted in an injury that kept him from doing his job for six months? Suddenly, he's suing you for $1 million to cover the six months he's away from work.
Your auto policy's liability coverage may pay for up to $250,000, but where would you come up with the remaining $750,000? A personal umbrella policy can help cover the additional costs when your standard insurance policy isn't enough. An umbrella policy could provide the additional coverage you need so that you don't get stuck trying to pay the remaining balance yourself. This extra policy could help protect your bank account, home and other personal property.
In most cases, personal umbrella policies are available in million-dollar increments, from $1 million to $5 million. While an umbrella policy is not required, it may offer increased protection in the unfortunate event of an accident.
What is generally not covered by an umbrella policy?
Your personal property.
While personal umbrella insurance is designed to help cover expenses if you're held responsible for damages to someone else's property, that coverage typically won't apply if you cause damage to your own property. Suppose your bathtub overflows, destroying drywall in your home. Your own damages would be excluded from coverage. But if the overflow destroys the property of your downstairs neighbor, your personal umbrella insurance may cover the damages caused by your negligence, preventing you from paying out of pocket for the loss. It's important to note, though, that any umbrella insurance benefits would kick in only after the underlying policy limits have been exhausted.
Losses related to the operation of your business or damage to your business property would generally not be covered by a personal umbrella policy. The exclusion applies even if the business is home-based. For example, if you earn money providing day care in your home, any liabilities resulting from that arrangement would likely not be covered.
Personal umbrella insurance typically doesn't cover other business-related liabilities such as a malpractice lawsuit, or losses in connection with your paid position as an officer or member of a governing board of a for-profit organization.
Criminal or intentional actions.
A personal umbrella policy usually won't protect you from the consequences of your own intentionally harmful or illegal behavior — for example, restitution you owe if you're convicted of a crime or damage you intended to cause through your actions.
Personal umbrella insurance typically won't protect you from any liability that arises in connection with an oral or written contract you've entered. So, if you find yourself facing a lawsuit from someone you've hired to work on your home, for example, it's unlikely that your umbrella insurance would provide protection.
Is umbrella insurance the same as excess liability insurance?
Umbrella insurance is sometimes referred to as excess liability protection, but these are actually two different types of insurance.
Not all insurers offer excess liability coverage. These policies only provide coverage for the same risks as your underlying policy and come with the same exclusions. For example, if you have excess liability coverage on your homeowners insurance policy, you'll likely have additional protection if you are found responsible for a visitor's injuries at your home. However, you probably would not have coverage for a libel or slander settlement, because defamation is not a risk covered by standard homeowners liability insurance.
Meanwhile, a personal umbrella policy typically provides greater liability coverage for situations covered by your underlying policy, as well as protection for other risks. For example, umbrella insurance can help pay for a libel or slander judgment against you, while a standard homeowners liability coverage, even if you have excess liability coverage, probably will not.