What Is Umbrella Insurance and Do You Need It?

Umbrella insurance sounds like an extra you can skip, until you understand what it protects and how cheaply it does it. For a lot of people it is the most cost-effective coverage they could own. So what is it, and do you actually need one?

What an umbrella policy does

An umbrella policy adds extra liability coverage on top of your home and auto policies. When a claim or lawsuit blows past the liability limit on your underlying policy, the umbrella kicks in and covers the rest, up to its own much larger limit. It catches the overflow that would otherwise come straight out of your pocket.

Why it is so cheap

The price is the part that surprises people. Because the umbrella only pays after your other policies are exhausted, it is inexpensive for the protection it gives, often a few hundred dollars a year for a million dollars of coverage. The price-to-protection ratio is unlike almost anything else in insurance.

Who actually needs one

The honest test is your net worth and your exposure. If a serious lawsuit, say from an at-fault accident with major injuries or someone badly hurt on your property, could exceed your home and auto liability limits, an umbrella protects everything above them: your savings, your home equity, your future wages. If you own a home, have teen drivers, or keep a pool or a dog, it is worth a hard look.

Check your underlying limits first

An umbrella sits on top of your existing limits, so the first step is knowing what those limits actually are. Run your home and auto policies through MyPolicyShield to see your current liability limits, so you can judge whether an umbrella makes sense.

Smart to see how far your protection reaches before you ever have to test it.