What is Umbrella Insurance? Everything You Need to Know About It

Dec 13, 2023 By Triston Martin

What is Umbrella Insurance? Umbrella insurance, also known as excess liability insurance and excess protection insurance, provides broad and extensive personal umbrella coverage beyond other underlying policies to protect you from being sued or involved in a lawsuit. In addition to protecting, you from being sued, umbrella insurance protects your income and assets above the amount covered by other insurance policies. The vast majority of people do not realize that this type of liability protection only protects you up to the age of the policy. For example, if your home or auto insurance policy is several years old and does not account for inflation, it will likely be insufficient coverage to meet your needs.

How Much Umbrella Liability Insurance Do I Need?

The limits of your umbrella insurance policy should match those you currently have on your auto and homeowners' policies. It is also a good idea, though not required, to purchase an amount that matches your net worth. As a rule of thumb, most experts recommend having at least as much liability coverage as your net worth. For example, if you have $500,000 in assets (excluding your home and car), it is recommended that you purchase at least $500,000 of umbrella liability insurance.

Currently, some states require drivers to carry a minimum amount of liability coverage to drive a vehicle legally. In addition to a motorist carrying a minimum amount of liability coverage, they are often required to purchase Personal Injury Protection (PIP) and Uninsured Motorist Coverage. By purchasing umbrella insurance, you will be afforded protection above the minimum limits required by your state.

How Does Umbrella Insurance Work?

Umbrella Insurance provides liability coverage beyond the limits you select for your Home, Auto, and Watercraft insurance policies. It also covers costs (up to that limit) when defending yourself against lawsuits related to bodily injury or property damage. These expenses include attorney fees, court costs, and judgments or settlements.

Those who know what is umbrella insurance know that Umbrella Insurance is not related to your underlying insurance. Umbrella Insurance provides coverage for liability claims excluded by the other policies you have in place. For example, if you have umbrella coverage with limits of $1 million but only carry liability limits on your auto policy of $300,000, this would cover the remaining expenses up to an additional $700,000. You can purchase umbrella coverage in increments up to $5 million (or more) in limits and for different periods:

· Annual - starts on the date of purchase and renews each year automatically until you cancel it.

· Monthly - You agree to a one-time payment that covers you for a one-month policy term.

· Quarterly - You agree to a one-time payment that covers you for a three-month policy term.

· Lifetime - This is a one-time payment, similar to the other options above, but it does not renew at its end date.

Who Needs Umbrella Insurance?

Anyone who wants to protect themselves against claims that may exceed the limits on their current policy should consider adding an umbrella policy. This extra coverage is perfect for people with sizable assets that may be affected, such as a home or other real estate, expensive cars, and high net worth investments. So, it is necessary for you to know what is umbrella insurance.

Why You Need It

There are three main reasons you need to consider purchasing this kind of insurance.

· The first reason is that you want to protect yourself against claims that exceed the limits on your current policy. As stated above, umbrella insurance can be purchased as an extra layer of protection over your home and auto policies.

· The second reason is that you have sizable assets affected by claims.

· The third reason is that you want to protect yourself against claims of libel and slander, which are excluded from the traditional liability policy.

What Does Umbrella Insurance Protect You Against?

Umbrella insurance protects you and your family members from lawsuits that involve personal injury to other people, damage to other people's property, and a wide range of other claims based on your policy. If you have umbrella insurance, it will usually pay for any damages you cause up to your liability limit. Still, it will also pay for any legal costs above that amount.

Suppose you have $1 million of liability insurance in your umbrella policy, and you get sued for that amount. If you have the umbrella policy, your insurer will cover the $1 million, and it would also help pay for your legal defense or pay for your fees. You might be responsible for a "retained limit," which is like a deductible in that you have to pay it before your insurance starts to payout.

What Does An Umbrella Insurance Not Protect You Against?

Umbrella insurance does not provide coverage for your personal injuries or property damage; you will need to get additional insurance for these purposes (like health insurance or car insurance accident coverage). Furthermore, unless you obtain a commercial umbrella coverage rather than a personal umbrella policy, it will not cover liabilities linked with your business.

The majority of umbrella insurance plans do not cover responsibility resulting from the violation of a contract you have entered into with a third party. Suppose a roofing firm sues you because you haven't paid for the work performed under the agreement you signed. Your umbrella insurance coverage is unlikely to be of assistance in this situation. In addition, intentional harm or a crime is always not protected.


A personal liability suit may leave even the very caring individual with the greatest intentions liable for a huge amount. Even though you're not likely to be in this situation, it's still a good idea to protect yourself against a huge financial loss like this. You can get umbrella insurance to help you do that, as well.

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