Umbrella Liability Insurance: Extra Protection for Your Assets
What Is Umbrella Liability Insurance?
Umbrella liability insurance is designed to add an extra layer of protection between your assets and a potential lawsuit. It provides coverage above and beyond the limits of your existing auto and homeowners insurance policies.
In 2019, the U.S. reached a record 11.8 million millionaires, up from 11.5 million the year before. More personal wealth can bring greater financial flexibility — but it can also bring greater liability. Individuals with a high net worth, or who are simply perceived to have one, may face a higher likelihood of being sued, and personal injury claims can reach into the millions.¹
This is exactly the exposure that umbrella insurance is built to address.
How Does Umbrella Insurance Work?
Umbrella liability coverage kicks in once the liability limits on your underlying auto or homeowners policy have been exhausted.
Example
Imagine your teenage son borrows your car and gets into an accident, seriously injuring the other driver. The accident leads to a lawsuit and a $1 million judgment against you.
- If your auto insurance has a liability limit of $500,000, that portion is covered.
- If you carry umbrella liability coverage, your policy can be structured to cover the remaining $500,000.
- Without umbrella coverage, you could be personally responsible for that remaining amount — potentially meaning liquidated assets, lost home equity, or garnished wages.
What Umbrella Insurance Coverage Typically Includes
Umbrella policies are usually sold in $1 million increments and generally cost just a few hundred dollars a year. Umbrella insurance coverage typically extends to a broad range of situations, including:
- Bodily injury
- Property damage caused by you or a household member
- Libel and slander
- False arrest
- Defamation of character
Is Umbrella Liability Insurance Right for You?
Whether umbrella coverage makes sense often comes down to your lifestyle. You might consider a policy if you:
- Entertain frequently and serve alcohol to guests
- Operate a business out of your home
- Give interviews that may be published
- Employ uninsured workers on your property
- Drive a lot of miles or have teenage drivers
- Live in a way that gives the appearance of wealth
- Own a dog, especially of a breed known to be aggressive
- Own jet skis, a boat, motorcycles, or snowmobiles
Florida homeowners in particular may want to weigh these factors carefully, given the state’s popularity for boating, waterfront properties, and outdoor entertaining — all of which can increase personal liability exposure.
You Don’t Have to Be a Millionaire to Need It
You don’t need to be a millionaire to be sued for a million dollars. Anyone carefully building a financial portfolio may want to limit their exposure to risk. Umbrella liability insurance can be a relatively inexpensive way to help shelter current assets and future income from the unexpected.
This is a simplified description of coverage. All statements made are subject to the provisions, exclusions, conditions, and limitations of applicable insurance policies. Please refer to actual policy documents for complete details regarding coverage.
Who’s Got What? A Look at U.S. Household Net Worth
In 2018, about 31.2 million U.S. households had a net worth between $100,000 and $1 million (excluding their primary residence). By comparison, only 173,000 households had a net worth of $25 million or more.¹
Chart Source: Spectrem Group, 2019
Frequently Asked Questions
What is umbrella liability insurance?
Umbrella liability insurance is a policy that provides an extra layer of liability protection beyond the limits of your existing auto or homeowners insurance, helping shield your assets from large lawsuit judgments.
How does umbrella insurance work?
Umbrella insurance activates once the liability limits on your underlying auto or homeowners policy are used up. For example, if a judgment against you exceeds your auto policy’s $500,000 limit, umbrella coverage can pay the remaining amount, up to your umbrella policy’s limit.
How much does umbrella liability coverage typically cost?
Umbrella liability insurance is usually sold in $1 million increments and generally costs just a few hundred dollars per year.
What does umbrella insurance coverage include?
Umbrella insurance coverage typically includes bodily injury, property damage caused by you or a household member, libel, slander, false arrest, and defamation of character claims.
Do I need umbrella liability insurance if I’m not a millionaire?
Yes, it can still be worthwhile. You don’t have to be a millionaire to be sued for a million dollars, and umbrella coverage is a relatively inexpensive way to help protect your current assets and future income.
1. Spectrem Group, 2019
The content is developed from sources believed to be providing accurate information. This information is not intended as tax or legal advice and may not be used for the purpose of avoiding any federal tax penalties. Please consult a legal or tax professional regarding your individual situation. The opinions expressed and material provided are for general information only and should not be considered a solicitation for the purchase or sale of any security.
