Why You Should Get an Umbrella Policy

A recent Wall Street Journal article reports that 23% of homeowners surveyed have an umbrella insurance policy. The remaining 77% without them are exposed to unnecessary risk.

Here are several reasons you should add an Umbrella Policy (or PULP) to your portfolio.

What Is Personal Umbrella Insurance?

Personal umbrella insurance is extra liability coverage that sits over your home, rental property, auto and watercraft insurance. Think of it as a financial backstop. If you’re responsible for a serious accident and your main policy runs out of coverage, an umbrella policy steps in and pays the rest—up to its limit.

For example, if your auto policy covers up to $500,000 for injuries you cause in a crash, but you’re sued for $750,000, your umbrella policy can cover the remaining $250,000 (after your auto policy pays its limit).

Umbrella insurance is designed to protect your savings, home equity, and future income if you’re faced with a large lawsuit. Given the nuclear verdict trend in lawsuits over the past 10 years, this coverage is even more important.

It also covers certain types of claims that standard home and auto policies usually do not, such as:

• Libel or slander

• Defamation

• False arrest

• Invasion of privacy

• Wrongful eviction

  
  

Most umbrella policies start at $1 million in coverage. Many insurers offer up to $5 million or $10 million, and some specialty insurers offer much higher limits.

Despite the relatively low cost, only about 23% of homeowners say they have umbrella coverage. That means many households may be exposed to unnecessary risk.

What Does Umbrella Insurance Cover?

Umbrella insurance focuses on liability—situations where you are legally responsible for injury or damage to someone else.

1. Bodily Injury Liability

If someone is injured and you are at fault, umbrella insurance can cover:

• Medical bills

• Lost wages

• Pain and suffering

• Legal defense costs

• Settlements or court judgments

  
  

Real-life examples:

• A guest slips on your icy steps, suffers a serious injury, and sues you.

• A child is injured in your backyard pool, and the family files a lawsuit.

• You cause a major car accident involving multiple people with significant injuries.

• Your dog bites someone and causes serious injuries (as long as your policy does not exclude the breed).

  
  

Large injury claims can quickly exceed the $300,000 or $500,000 liability limits found in many homeowners policies. That’s where umbrella insurance becomes critical.

2. Property Damage Liability

Umbrella insurance also helps if you damage someone else’s property and your primary policy limit is not enough. Umbrella insurance covers damage to other people’s property—not your own.

For example:

• You cause a multi-car accident with extensive damage to several vehicles.

• Your car crashes into a building.

• You accidentally damage valuable property while visiting someone’s home.

  
  

3. Personal Injury (Non-Physical Harm)

Standard home and auto policies often don’t cover personal injury claims like:

• Libel or slander (for example, a social media post that leads to a lawsuit)

• Defamation

• False arrest

• Invasion of privacy

• Wrongful eviction

  
  

In today’s world of online reviews and social media, these claims are more common than many people realize.

What Umbrella Insurance Does Not Cover

Umbrella insurance is broad—but it doesn’t cover everything. It is meant to cover accidents and negligence—not intentional wrongdoing. Common exclusions include:

• Business or professional activities (including many home-based businesses)

• Intentional or criminal acts

• Contractual obligations

• Damage to your own property

• Your own medical expenses or those of household members

• Aircraft or hovercraft

• Boats or watercraft (unless properly insured under a primary policy)

  
  

How Umbrella Insurance Works With Your Other Policies

You must have underlying insurance—such as home or auto—to qualify for an umbrella policy.

Here’s how it works:

1. A claim is made.

2. Your home or auto insurance pays first, up to its limit.

3. If the claim exceeds that limit, your umbrella policy pays the remaining amount (up to its limit).

Insurance companies usually require minimum liability limits on your home and auto policies before you can purchase umbrella coverage. For example, many require:

• At least $500,000 in home liability

• $500,000 per person auto liability coverage

  
  

How Much Does Umbrella Insurance Cost?

Umbrella insurance is often more affordable than people expect.

Estimated 2026 annual premiums for a household with one home, two cars, and two drivers:

• $1 million in coverage: about $496 per year

• $2 million: about $614 per year

• $5 million: about $788 per year

• $10 million: about $1,295 per year

  
  

As coverage increases, the cost per $1 million actually goes down.

Your exact premium depends on factors such as:

• Your assets (homes, vehicles, boats, ATVs)

• Number and age of drivers in your household

• Where you live - city drivers face more traffic, rural homeowners may have more recreational vehicles, etc.

• Your profession, volunteer work, and hobbies.

  
  

Do You Need Umbrella Insurance?

A good rule of thumb: if your net worth is higher than your liability limits, you should strongly consider umbrella coverage.

Many homeowners policies cap liability at $300,000 or $500,000. A serious accident can easily exceed that amount.

You may want to consider umbrella insurance if:

• You have a pool or a dog

• You host gatherings at your home

• You have a teen driver

• You serve on a nonprofit board

• You coach youth sports

• You are active on social media

• You are a public figure or have significant visibility

• You simply want to protect your savings and future income

  
  

You must check with your provider to see which events are covered by your Umbrella policy. For example, some may not cover politicians or board members, while others may exclude any public figures.

Even if none of these events apply, accidents happen every day. A single lawsuit could affect everything you’ve worked hard to build.

The Bottom Line

Umbrella insurance is not just for the wealthy. It is a practical, affordable way to protect your assets from large liability claims.

For many households, $1 million in umbrella coverage costs about the same as a few dollars per week. In return, you gain meaningful protection against life’s unexpected—and sometimes expensive—events.

If you’re unsure whether umbrella insurance makes sense for you, start by reviewing your current liability limits. A quick conversation with your insurance advisor can help you decide whether adding this extra layer of protection is right for your situation or if your current needs are covered.

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Sources: WSJ, bestinsured.net, iii.org