What Is Umbrella Insurance and What Does It Cover?Updated October 18, 2022 Insurance
Even if you already have a home insurance policy and an auto insurance policy in place, the limits of these individual policies may not be sufficient to cover all expenses associated with a dramatic accident or personal liability situation. In many cases, it’s helpful also to have an umbrella insurance policy to help lower your financial loss during an expensive covered occurrence.
Umbrella insurance policies aren’t just for the wealthy. With the increasing rise of insurance claims in recent years, it’s wise for every homeowner to have insurance that covers a major event.
5 Best Umbrella Insurance Companies
- Liberty Mutual
- The Hartford
Most people understand the value and importance of both home and auto insurance and have those policies firmly in place. However, the reality is that both home and auto insurance have limits, and a traumatic accident or other situation that causes harm for which you are liable may stretch costs beyond your home or automobile insurance policy. Even the most comprehensive coverage can leave you exposed, so you may want to consider coverage from an umbrella policy.
An umbrella insurance policy can provide extra protection on two fronts. First, it can cover specific situations not addressed by your homeowners or auto insurance policy. Second, it can cover expenses after the limits of your home or auto insurance have been exhausted.
What Is Umbrella Insurance?
An umbrella insurance policy is called such because it functions above and beyond your standard auto or homeowners insurance policy, offering extra protection for you and your family against devastating liability claims or judgments against you. An easy way to think of it is that umbrella insurance kicks in when your other types of insurance have reached their limits.
Personal umbrella policies are completely optional, but they do provide tremendous value and protection when needed. You also may hear this type of coverage referred to as excess liability coverage. This is an insurance policy that isn’t used until the liability limit of your home or auto coverage has been exhausted.
In addition to supplementing liability insurance, an umbrella policy may provide protection when standard car insurance doesn't have enough coverage. For example, an umbrella insurance policy can help protect you if you select optional excess uninsured motorist coverage and then are involved in an accident with an uninsured or underinsured driver. In this kind of situation, an umbrella policy would complement the gap insurance policy for your automobile.
5 Best Umbrella Insurance Companies
Allstate is one of the largest insurance companies in the U.S. and currently serves more than 16 million households across the nation. Allstate provides property and casualty, plus other types of insurance products across both the United States and Canada. The company offers private passenger auto, homeowners insurance, and a variety of specialty insurance coverage such as renter, condominium, landlord, boat, personal property, and umbrella policies.
Allstate was founded in 1931 as part of Sears, Roebuck and Company and currently is headquartered in Northfield Township, Illinois.
Geico is a popular and affordable insurance option for many U.S. households. Geico is the nation’s second-largest auto insurance company, and it’s known chiefly for its low rates offered directly to consumers both online and over the phone. Geico’s insurance products are available in all 50 U.S. states and Washington, D.C.
In addition to auto insurance, you can purchase the following types of policies from Geico:
- Motorcycle insurance
- Insurance for all-terrain vehicles
- Recreational vehicle insurance
- Boat or personal watercraft insurance
- Commercial auto insurance
- Umbrella insurance, though it’s important to note that some policies are sold by third parties
Geico is a great option for consumers who are looking for affordable policies and also feel comfortable managing their own accounts without the assistance of a local agent. Overall, the company is very tech-friendly and offers a wide range of discounts.
Liberty Mutual is a well-trusted insurance provider that offers a wide breadth of coverage options, allowing consumers to customize policies to fit their needs. Liberty Mutual is the sixth-largest provider of auto insurance in the nation, though it also provides coverage for a wide variety of personal and business needs, including umbrella policies.
The full range of Liberty Mutual offerings includes the following type of insurance policies:
- Umbrella insurance
- Renters insurance
- Condo insurance
- Motorcycle insurance
- Business insurance
- Critical illness insurance
- Accident insurance
- Flood insurance
- Landlord insurance
- Boat and watercraft insurance
- Recreational vehicle insurance
- Antique and classic car insurance
- All-terrain or off-road vehicle insurance
- Pet insurance
Coverage is available in all 50 U.S. states and Washington, D.C. In addition, Liberty Mutual’s website is robust and useful, allowing customers to manage policies, pay bills, access ID cards, and report or track claims.
Chubb is an ideal option for high net-worth individuals who are looking for a premium service. The company is well known for its outstanding customer service and unusual product offerings, such as high policy limits, cash settlement opportunities, and cybersecurity protections. Chubb boasts a strong national network of independent insurance agents and brokers who can provide its customers with highly personalized, one-on-one relationships.
Chubb offers convenient and useful online services, such as filing a claim or chatting with a representative, via its mobile app. An important point to note: Chubb’s premium prices typically run higher than most other insurance providers, but if you own expensive autos or homes, Chubb can be an outstanding option for you.
In addition to home and auto insurance policies, Chubb provides renters insurance, condo insurance, flood insurance, farm and ranch insurance, umbrella insurance, and more.
The Hartford offers many insurance options in partnership with AARP, making it an attractive option for people over age 50. In addition to both home and auto insurance, The Hartford offers renters insurance, boat insurance, classic car insurance, recreational vehicle insurance, condo insurance, umbrella insurance, flood insurance, and more. It’s important to note that some policies may be sold by third parties.
Insurance coverage from The Hartford is available in all 50 states and Washington, D.C., and the company receives higher than average ratings for its customer service.
What Does Umbrella Insurance Cover?
An umbrella insurance policy is extra liability insurance that protects you above and beyond standard insurance coverage. Your umbrella coverage will kick in when the limits of your homeowners or car insurance are exhausted. These types of situations typically are the result of bodily injury, personal injury, or property damage. Most umbrella policies cover both you and your spouse, any dependents or other relatives who live with you, and anyone else that you specifically name within your policy declarations.
An umbrella insurance policy can provide coverage for claims that often are excluded by other liability policies – including situations like false arrest, libel, slander, shock or mental anguish, malicious prosecution, and even liability coverage on rental units you own. Most policies cover situations like injuries, damage to property, some lawsuits, and personal liability situations.
What Does Umbrella Insurance NOT Cover?
As functional and versatile as they are, umbrella insurance policies won’t cover everything. For example, umbrella insurance generally will not cover damages associated with liability or damages related to a personal business, your personal belongings, intentional or criminal acts or omissions, and any written or oral contract. You’re on your own when it comes to your own personal property, intentional harm you cause others, or liability you willingly take on when you enter into a contract.
Ways an Umbrella Policy Can Help
If you are involved in a legal or financial dispute, your umbrella insurance policy may pay any legal fees and reimburse you for any lost wages due to court appearances. In addition, your policy typically will cover you no matter where you are in the world when the covered occurrence takes place.
For example, bodily injury liability insurance helps protect you against injuries another person suffers in a given accident. This may include medical bills and any liability claims related to situations, like harm caused to someone else by your dog or other pet, injuries someone else suffers in an accident you caused, harm suffered by someone who falls while in your home, or injuries to a neighbor’s child who is playing in your backyard.
Property damage liability coverage helps protect you against damages or loss to someone else’s property, such as damage to other vehicles or other property due to an accident that you cause.
Think about this situation: Let’s say you’re involved in an auto accident that you cause, and someone else involved in the accident suffers damages equal to $400,000. But your auto insurance liability coverage taps out at $250,000. You are then liable for $150,000 to cover the other person involved in the accident. But if you have an umbrella insurance policy in place, it can kick in to cover the additional $150,000 in expenses that you owe.
Here are some other scenarios to think about:
- An accident on your backyard swing set that causes serious injuries
- A broken step causes your housecleaner to fall and have an accident
- Someone slips in the area around your swimming pool, requiring surgery
- Your teen accidentally sets fire to a neighbor’s yard while burning leaves
- You crash your boat into another boat
- Your lawn mower throws a rock through a neighbor’s window
Rental property owners can also benefit from an umbrella policy. Having additional liability coverage can be tremendously helpful in protecting you against situations such as someone falling and becoming injured within one of your rental properties, or a tenant’s pet causing injury to someone.
How Much Does Umbrella Insurance Cost?
As with most insurance products, the cost of your umbrella policy largely depends on how much your insurance policy covers. Umbrella insurance policies generally are available in $1 million increments, ranging up to $5 million.
In addition to the coverage amount, your insurance company will consider other factors when setting your rate, such as your location, the number and types of vehicles you own, and whether you own multiple homes. The $1 million level is the typical amount of coverage offered, but depending on your assets and your level of risk, you can talk with your insurance agent about purchasing a policy with a higher limit.
Usually, insurance companies require homeowners to purchase other types of insurance before being eligible for an umbrella policy. For example, many insurance providers require that you carry at least $300,000 in liability for your homeowners insurance policy before purchasing an umbrella policy. In addition, they may require similar limits for your auto insurance policy, or if you own a boat.
The good news is that umbrella insurance policies are generally fairly affordable. Information from the Insurance Information Institute indicates that a $1 million umbrella policy typically costs between $150 and $300 per year. Of course, you’ll pay more or less than this if you choose a lower or higher limit for your policy.
Do I Need Umbrella Insurance?
Ultimately, the decision to purchase an umbrella insurance policy is up to you. These policies are entirely optional. However, sometimes it makes sense to have an umbrella insurance policy in place. This is especially true if you own a home and regularly drive a car (or you have children who drive). In addition, if you own a swimming pool, dog or boat, you may benefit from an umbrella insurance policy. Some experts advise that any homeowner with property amenities such as a hot tub, swimming pool, trampoline, playground equipment, swing set, or treehouse should purchase umbrella coverage since these items often increase a homeowner’s liability risk.
Homeowners who employ domestic staff such as house cleaners, nannies, or gardeners, and those who entertain often in their homes may also have need of an umbrella insurance policy. Politicians and celebrities who are often in the public eye can also benefit from the extra protection offered by an umbrella insurance policy.
To determine if you need umbrella insurance, calculate both your total net worth and total the limits of your existing insurance policies. If your limits are lower than your net worth, then umbrella insurance may be a wise investment for you. Talk with your insurance agent about your policy limits and whether an umbrella insurance policy is right for you.