What is umbrella insurance, and do you need it?

An umbrella policy provides additional liability coverage that activates once the limits of your underlying home and auto policies are exhausted. Coverage typically starts at one million dollars and costs a few hundred dollars annually, which makes it among the least expensive protection available per dollar of coverage. The pricing reflects the probability: most people never exhaust their primary liability limits, but the scenarios that do, a serious at-fault accident with multiple injuries, a lawsuit over an injury at your home, are financially catastrophic without it.

Insurers require you to carry specified minimum liability limits on the underlying policies before writing an umbrella, commonly a few hundred thousand dollars on auto and home, so obtaining one usually means raising those first. Umbrella coverage also extends beyond your primary policies in useful ways, frequently covering personal injury claims such as libel, slander, and false arrest that homeowners policies exclude, and covering incidents worldwide.

Who genuinely needs it comes down to exposure and assets. The stronger cases: meaningful assets or future earnings a judgment could reach, teenage drivers on your policy, a swimming pool, trampoline, or dog, rental property, frequent hosting, serving on a nonprofit board, or a public profile. Note that a judgment can attach to future wages, so having few assets today does not eliminate the risk for someone early in a high-earning career. Two exclusions worth knowing: umbrella policies generally do not cover business activities, which need commercial coverage, and they do not cover intentional acts or your own injuries and property damage.