When Do You Need Umbrella Insurance?

Umbrella insurance provides liability coverage beyond most property insurance policies. This includes coverage for damages caused by you and members of your household, as well as limited coverage in the event you're sued.

Umbrella insurance is a way to protect you in a worst-case scenario. Consider an insurance policy for a boat with liability coverage of $100,000. Let's say a wrongful-death lawsuit leads to $1 million in damages, including related medical bills, attorney fees, and other legal fees. The remaining $900,000 would come from the policyholder's own pocket—unless they have a $1 million umbrella policy, which would cover the gap between the boat policy and the total damages due for the personal injury claim.

Although umbrella insurance is of particular value to affluent individuals with significant assets to protect, nearly anyone can benefit from the extra coverage. In general, those making $250,000 or more a year should consider at least a minimal umbrella policy, especially as premiums on such policies are relatively low.

The best thing about umbrella insurance is that it's on the cheaper side because you generally have to exhaust your underlying policies before it kicks in, whereas selecting higher liability coverage on individual policies can quickly become cost-prohibitive.

When purchasing any new insurance, an experienced broker can help ensure your policies work together while avoiding unnecessary coverage. A general rule of thumb is to have total liability coverage worth one to two times your net worth across your umbrella and regular policies, like homeowners and auto insurance. The good news is that it's relatively cost-effective, running as little as a few hundred dollars a year for $1 million in coverage.