What is Umbrella Insurance?

Umbrella insurance is a way to better protect your assets from accidents.  But how does it do this?  And is it worth it?

I’ll answer these questions below by first explaining where an Umbrella’s coverage applies and the potential consequences of not having Umbrella Insurance.  I’ll then detail what the typical cost of an Umbrella is, then give a real life example showing it’s importance.

Umbrella Insurance Coverage

An Umbrella Insurance policy provides additional liability protection.  The coverage stacks on top of your other insurance policies to increase your total coverage.  For example, if you have $500,000 in liability coverage on your car insurance, and a $1,000,000 umbrella liability limit, you have $1,500,000 in coverage for an accident.

Coverage from the Umbrella can go over your Auto Insurance, Homeowners Insurance, and other policy, such as a Rental Property, Secondary or Vacation Home, Boat, Motorcycle, or RV.

You can also obtain Umbrella Insurance for a business.  This post is specifically addressing Personal Insurance, but a lot of what we’re covering here is also relevant for businesses.

What is Liability Coverage?

Liability coverage is a protection that comes with your auto, homeowners, or other personal insurance policy.  It protects you against the bodily injury or property damage of others that you’re legally liable for.  In other words, if you’re responsible for injuring another person or damaging / destroying their property, your liability coverage gives you financial protection.

The amount of liability coverage you have is determined by the liability limit on your policy.  This is where we get into potential consequences of not having enough coverage.


Without enough liability coverage on your insurance policies, you can be required to pay out of pocket for damages that you’re found responsible for. You might have to draw money from your savings, an investment or retirement account, or even savings for your kids’ education.  If you have equity in your home, you might have to sell it.  A percentage of your pay might be docked every year until your debt is paid.

These are serious consequences, regardless of how much you have and how much you make. 

What does an Umbrella Insurance policy cost?

Not that much.

Seriously, these policies provide as good a value as you can get in insurance.

The protection it gives you combined with it’s low cost, it’s a no-brainer coverage for most people.  You might even wonder why you’ve never heard of it before.

Umbrella Insurance policies start at $150 a year. For as little as $13 a month, you can add a level of protection that will give you actual peace of mind.


Umbrella Insurance in the Real World

“Mike” is a teacher.  He works hard and loves spending time with his family.

Mike’s also a good driver.  He wears his seatbelt, puts his phone away while driving, and for the most part he obeys traffic laws.

One day while driving home, Mike turns the corner and hits a man, “John,” who’s walking across the street.  Mike wasn’t speeding, he was paying attention, but he just never saw him.

John suffers several broken bones and some head trauma.  Multiple surgeries are required along with a lengthy rehabilitation.

John works in sales and is pretty good at his job, bringing home about $150,000 a year.  With several surgeries and rehab, John can’t work for an extended period of time.  When he does get back, he can only work part time.  While his company has done their best to fill in for him, John has lost some clients and it takes him a long time to get back to the level where he was before.

Finally, John has some long term health issues that might never return to normal.  John was a pretty good golfer – if he’s able to get back on the course, he might never be as good as he was.  John also suffers from headaches regularly, and the doctors aren’t sure they’ll ever completely go away.

Between the medical bills, John’s lost income, and for the pain & suffering he’s endured, the total legal damages Mike is responsible for come in at about $1,300,000.

FortunatelyMike had purchased an Umbrella Insurance policy, which covered the damages in full.  While Mike will always live with the injury he’s caused, he and his family’s financial future remains on track.  They don’t have to sell their home, cash out their retirement or education funds, or be responsible for paying off their debt for the rest of their lives.

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