What is an Umbrella Policy?

Insurance covers everything, right? Wrong! If you’re ever faced with a situation or lawsuit that requires money beyond your policy payout, you could spend your entire life savings trying to remedy things. This would be detrimental for anyone and cause irreconcilable setbacks in life. Nobody wants this to happen! That’s why umbrella policies were created. Since they are a relatively low cost option that provides a lot of extra coverage, they are one of the most recommended insurance policies by insurance agents.

What Is It?

An umbrella policy is a form of additional personal liability coverage that acts as backup coverage in case something goes terribly wrong. It covers things beyond what homeowners, auto, and watercraft policies cover. Umbrella policy coverage also extends to the other family or household members of the policy holder. These policies are like a safety net that will protect you after the coverage from your main policy is paid out in full. Most basic plans only cover $100,000-$400,000 worth of damages, which if you are ever involved in a lawsuit, will not get you very far. 

Take this scenario, for example. You are in an auto accident and the crash was your fault. There were three people in the other car, each is suing you for $150,000 worth of damages and medical bills, equaling a total of $450,000 that you need to pay out. Your auto policy only covers $100,000 worth of damages. If you don’t have an umbrella policy, a lawsuit like this could ruin your finances and put you in extreme debt. 

Let’s hope this never happens! But since it truly can happen to anyone, that’s why umbrella policies are such a popular plan. They typically start at $1 million dollars worth of extra coverage and there are many options to have additional millions of dollars worth of coverage if that is the best plan for you and within your budget. 

What About Injuries?

Umbrella policies mainly cover injuries to others or any damage that happens to their possessions. It is important to note, it only covers the other people, not you, the policyholder. Beyond injuries, it will cover lawsuits for slander and libel, which is rare to find in any other form of personal insurance. 

Who Needs It?

Anyone who is at a greater risk of causing damage and being sued should have an umbrella policy. This is great for people who engage in dangerous activities. It is also a smart option for people at a greater risk, like families with a new teen driver attached to their auto insurance policy. Another example is anyone with a high net worth or a lot of assets because they are more likely to be sued. Lawyers will be aware of their worth and try to sue them for even more than average, which is why such individuals often take out higher-amount umbrella policies. Another example is someone who owns a lot of property, like a few houses, boats, or multiple cars. Lastly, an umbrella policy is great for anyone who has extensive savings because lawyers will try to go after this money in court and, in most cases, the savings will be diminished to almost nothing if left uninsured. 

How Much Is It?

Compared to other forms of insurance, umbrella policies are relatively inexpensive. 

Minimum coverage is usually $1 million dollars worth of a payout, which typically cost policyholders only $200-$300 for the year. However, it is important to note that most policies require you to have at least $100,000 in basic home, auto, or watercraft insurance before getting additional coverage with an umbrella policy. Since all insurers are different, it’s a good idea to speak to an insurance agent about your options and what the minimum standards are before getting this type of policy. 


The main question you need to ask yourself is “Am I at risk of being sued?”. Most people will answer this question with a yes. You then have to ask “Am at a higher risk of a lawsuit and will I be able to afford a lawsuit if one occurs?” If this answer is no, you should talk to an independent insurance agent about getting an umbrella policy to ensure you and your family have the extra coverage you need. An umbrella policy is one of the best ways to maximize your insurance coverage for a number of scenarios, giving you peace of mind in case the unthinkable happens.