Umbrella Policy
Excess liability insurance that provides additional coverage beyond the limits of your auto and homeowners policies.
A personal umbrella policy provides an additional layer of liability protection—typically $1 million to $5 million—that kicks in after your underlying auto or homeowners liability limits are exhausted. For example, if you are at fault in a car accident that generates a $750,000 judgment and your auto liability limit is $300,000, your umbrella policy pays the remaining $450,000.
Umbrella policies are extraordinarily affordable relative to the protection they provide: $1 million in coverage typically costs $150–$300 per year. Coverage extends to you and household residents, includes defense costs on top of the liability limit, and may cover some incidents not covered by underlying policies (libel, slander, false arrest in some forms).
Insurers require minimum underlying liability limits on your auto and homeowners policies before they will issue an umbrella (typically $300,000 homeowners and $250,000/$500,000 auto). Anyone with significant assets—home equity, investments, retirement savings—should strongly consider a $1–2 million umbrella policy.
Real-World Example
When a teenager from the household caused a multi-car accident with $900,000 in damages, the family's $300,000 auto liability limit paid first, and the $1 million umbrella policy covered the rest.