Umbrella Insurance Explained

Umbrella insurance gives you additional liability insurance above your auto and homeowners insurance. It can also be added to other policies, such as boat and renters insurance. Its purpose is to give you extra protection in the event of a big disaster you're responsible for.

Without the extra layer of umbrella insurance, you can be sued for damages that exceed the liability limits in your auto or homeowners policy. So if you have assets that could be lost in a lawsuit -- such as savings -- umbrella insurance is a smart buy.

Here's what to know:

• Umbrella insurance limits typically start at $1 million and can go to several million dollars.
• It's relatively cheap for the amount of liability insurance you get. The cost can start at $200 a year, according to Trusted Choice, a group for independent insurance agents. The average cost is $380 for $1 million or $2 million in coverage.
• Your insurer will generally require you to have certain levels of liability coverage in your auto and home policies in order to add umbrella coverage. In other words, you typically can't buy the minimum auto insurance required by the state and then add umbrella insurance. The minimums needed could be $300,000 in liability on both your auto and home insurance, for example. Your insurance agent can tell you.

EverQuote can connect you to insurers that offer umbrella policies. Simply fill out a request for home or car insurance quotes and let the agents know you also want umbrella insurance.

How umbrella insurance works

Umbrella insurance starts paying out after a lawsuit exceeds the liability amounts in your auto or homeowner policy. For example, say you cause a big car accident with multiple injuries. If your car insurance coverage isn't enough, your umbrella policy kicks in. Without the umbrella insurance, you could be sued for damages that are above the car insurance limits.

Umbrella insurance gives you extra liability protection for problems covered by auto and home insurance:

• Injuries to others.
• Property damage to others.
• The legal fees to defend you in a lawsuit -- even if you're found to be not liable.

Importantly, an umbrella policy also gives you insurance for problems not covered by auto or homeowners insurance. It can cover lawsuits against you for:

• False arrest or imprisonment.
• Personal injury. This does not mean physical injuries. Rather, it applies to lawsuits against you for defamation, libel, slander and malicious prosecution, and your legal defense if you're sued for these things.
• Invasion of privacy.
• Unlawful entry.
• Assault and battery.
• Your work with a charitable or civic organization.

And if you're a landlord, note that umbrella insurance can cover:

• Liability on rental property you own, such as injuries to a tenant or tenant's guest.
• Wrongful eviction.

Who needs umbrella insurance?

If you have assets to protect from lawsuits, such as a house and savings, umbrella insurance is a wise purchase.

Give serious consideration to umbrella insurance if:

• You have a teen driver. Because of their inexperience, they tend to crash more.
• You're a lawsuit target because you have high net worth
• You own a business.
• You have something that can lead to an expensive injury lawsuit against you, such as a dog, pool or trampoline. Even tree houses and swing sets can be "risky."
• You own rental property.

How umbrella insurance is priced

Costs will vary by insurance company, but pricing factors often include:

• The amount of umbrella coverage you want.
• The location of your home.
• Your credit.
• The coverage limits in the primary policies (auto, home or renters).
• The number of properties and vehicles.
• Age of drivers in your household and their driving records.
• Length and horsepower of boats.
• Whether you run a business out of your home.
• Specific higher risks you have, such as a dog, pool or trampoline.

Trusted Choice recommends buying an amount of liability insurance equal to or greater than your net worth. That's because your net worth is potentially what you can be sued for. And simply having assets can make you a prime lawsuit target.

Remember that your primary policies (auto and homeowners) also provide liability coverage. So if you have $500,000 in auto insurance liability plus a $1 million umbrella policy, you have $1.5 million in liability coverage for auto-related lawsuits.