Umbrella insurance

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Standard homeowners policies include liability coverage, to help pay medical expenses and legal costs when someone sustains an injury in your home or if you’re liable for damage to a neighbor’s property. But some policies don’t provide enough protection, especially if your home has features that may increase your liability risk.

Umbrella insurance provides a second layer of liability protection. An umbrella policy picks up where your limited liability coverage ends. You can purchase an umbrella policy with $1 million or more in liability protection to ensure your assets remain safe when disaster strikes. While this is the typical level offered by insurance companies, you can opt for higher or lower limits depending on your needs. Best of all, an umbrella insurance policy is typically relatively cheap, offering an affordable way to maximize your protection.

What is umbrella insurance and how does it work?

Homeowners liability usually covers the medical expenses of people outside your household when they sustain an injury on your property. If the victim sues you, your liability coverage will help pay your legal costs too. Liability coverage also pays for the property damage of others when you are at fault. For example, if your lawnmower throws a rock and breaks your neighbor’s window, your liability coverage would help pay the repair bill.

Umbrella insurance provides extra protection when your homeowners liability coverage falls short. It is designed to cover costs that exceed the liability limits of your home insurance policy or liability expenses that may not be covered by the typical homeowners policy, such as personal injury (also known as slander).

Most standard home insurance policies provide default liability coverage of $100,000 to $300,000. Typically, insurers allow you to increase your liability coverage limit. Even so, some homeowners need more protection than standard homeowners liability can provide. To qualify for an umbrella policy, you must typically carry at least $500,000 in liability for the underlying policy first.

For instance, if you own a swimming pool and like to entertain guests, you could face serious medical and legal costs if someone sustains a serious injury or drowns. If you need $1 million or more in liability protection, you might need an umbrella insurance policy.

An umbrella policy can also protect properties you use but do not own. For example, if you rent a home for summer vacation and accidentally burn down the deck while barbecuing, your umbrella policy may pay to rebuild it.

What does an umbrella policy cover?

An umbrella policy can save the day when you face costly liability, but it’s important to understand exactly what it does and does not cover. Most umbrella policies will cover:

  • Bodily injury: Hosting guests in your home increases your risk of an accident. If a guest takes a tumble down your stairs and breaks a leg, your homeowners liability coverage will likely cover the medical costs. But if the victim falls into a lengthy coma and later sues you for pain and suffering, you might need to rely on the extra coverage provided in your umbrella policy.
  • Landlord liability: Some umbrella policies provide a certain level of coverage for landlords. For instance, if you rent a garage apartment to a tenant who sustains an injury when the apartment’s balcony collapses, your umbrella coverage may help pay medical expenses and legal costs.
  • Property damage: Standard home insurance can cover property damage disasters in some situations. Umbrella coverage applies to property damage caused to others that you are found liable and responsible for through negligence, for example. It would also only apply if the damage exceeds your underlying policy limits.
  • Personal injury: Personal injury protection covers legal expenses when someone sues you for libel, slander or wrongful eviction. The liability coverage in homeowners policies often excludes personal injury protection, although it can sometimes be added by an endorsement. Your umbrella insurance policy will kick in to help cover the costs from personal injury lawsuits.

In general, it covers past the limits of your typical policy, or areas not covered by the underlying policy.

What does an umbrella insurance policy not cover?

There are some kinds of damages not covered by umbrella policies:

  • Business losses: An umbrella policy will not typically cover your home office property. Likewise, umbrella insurance will not cover court costs or attorney fees associated with lawsuits filed against your home-based business. You could, however, purchase business insurance that includes liability coverage.
  • Losses caused by criminal acts: Like the liability coverage of your home insurance policy, an umbrella policy won’t cover losses caused by illegal activity. For instance, if a policyholder operates an illegal, homemade fireworks business and an accidental explosion burns down a neighbor’s home, the insurer would not likely pay a claim.
  • Personal belongings: The personal property coverage of your homeowners policy will pay to replace your belongings, like clothing and furniture, following a covered loss, but an umbrella policy won’t. Umbrella insurance only covers the personal belongings of others when you’re at fault for a loss.
  • Oral or written contracts: If a contractor sues you for not honoring the terms of an oral or written contract, your umbrella policy likely won’t cover your legal expenses.

Before you take out a policy, make sure it will cover the things you want protection for.

How much does umbrella insurance cost?

Many carriers offer umbrella insurance as an optional coverage. Often, you can add umbrella coverage when you purchase a home insurance policy. If you already have a policy, ask your agent if the insurer sells the coverage.

Some premium homeowners policies enable you to increase your liability limit to $1 million or more, which may eliminate the need for an umbrella insurance policy. For instance, Chubb’s standard home insurance policies provide personal liability protection up to $100 million.

According to the Insurance Information Institute, a $1 million umbrella policy typically costs $150 to $300 annually. However, the cost of insurance varies by location, along with factors such as your home’s age and construction, safety and security features and your age and claims history.

Do I need to purchase an umbrella insurance policy?

Although most insurers allow you to raise default medical payments limits, you still might not have enough coverage to pay all the medical bills a guest may sustain. For instance, medical bills for a broken leg can run $7,500 and a three-day hospital stay can cost $30,000. If the injured person sues you, attorney fees, court costs and a settlement can cost hundreds of thousands of dollars.

Generally, you should consider an umbrella policy if your home or property has any type of element that poses greater liability risks. Homeowners with amenities such as hot tubs, swimming pools, trampolines and treehouses should consider umbrella coverage because they increase your liability risk. Even if you do not entertain guests often, an uninvited visitor may enter your property and sustain an injury, for which the law may find you liable.

Many umbrella policies cover more risks, offering more protection.

Frequently asked questions

How much does umbrella insurance cost?

While you can purchase a $1 million umbrella policy for a few hundred dollars per year, you may pay more or less if you opt for higher or lower umbrella limits. Additionally, the cost of a policy can depend on many factors, including your home’s safety and security features, its age and construction and your insurance claims history.

Should I purchase umbrella coverage if my home has a swimming pool?

Home features such as swimming pools, fire pits, hot tubs and treehouses increase your liability risk. If you or one of your family members sustains an injury on your property, you can usually look to your health insurance to help cover the costs. But if a guest sustains an injury in your home, you will need adequate liability coverage. Umbrella insurance can help cover medical expenses and legal costs.

Are liability coverage and an umbrella insurance policy the same?

Liability coverage and an umbrella insurance policy both offer liability protection. However, the umbrella insurance policy only gets used if you exhaust the underlying liability coverage on your home or auto policy, or for instances that are not covered by the underlying policy, such as personal injury. The umbrella insurance policy acts as a second layer of protection above your home or car liability insurance.

Written by
Mandy Sleight
Insurance Contributor
Mandy Sleight has been a licensed insurance agent since 2005. She has three years of experience writing for insurance websites such as Bankrate.com, MoneyGeek and The Simple Dollar. Mandy writes about auto, homeowners, renters, life insurance, disability and supplemental insurance products.
Edited by
Insurance Editor