How umbrella insurance works

Think of umbrella insurance like an extra layer of liability homeowners coverage — one that goes beyond the capabilities of your existing policies and provides you with greater asset and wealth protection.^[1]

If someone were to get hurt on your property and sue you, and the damages and legal fees surpassed the limits on your homeowners policy, umbrella insurance would step in and cover the remaining costs. This could protect you from larger expenses that may otherwise force you to sell your home, cash in your retirement, or lose your financial savings.

What umbrella insurance covers

Let’s say someone is hurt on your property or their belongings are damaged or stolen from your home.

In these cases, umbrella insurance would cover things like:^[2]

• Legal defense costs

• Attorney fees

• Medical bills for those who sustain injuries on your property

• Damages to others’ property or vehicles while at your home

• Any court judgments or settlements for damages (this could include coverage for claims of libel, slander, defamation of character, and invasion of privacy)

What umbrella insurance doesn’t cover

Umbrella insurance won’t cover personal property damage (your own items), nor will it cover business losses. You’ll need a commercial policy for that. It also won’t cover contractual lawsuits or damage due to criminal activity or intentionally harmful behavior.

A Guide to How Homeowners Insurance Works

Do you need umbrella insurance?

Umbrella insurance isn’t required, but it can be a smart coverage addition if you:

• Own a swimming pool or trampoline

• Rent out your property, either part-time or full-time

• Have a dog

• Regularly host guests, kids, or events at your home

• Have significant assets (like investment accounts or real estate) to protect

If you were to be sued because of an accident, umbrella insurance ensures you’re not stuck paying any excess damages out of pocket — or worse, paying the damages by draining your retirement accounts, selling your home, or filing bankruptcy.

How much does umbrella insurance cost?

The exact cost of umbrella insurance depends on your coverage amount and individual risk factors, like where your home is located, its features, ages of those in your household, and more. The discounts you’re eligible for (like bundling your policy with another in your household) can also play a role.

On average, you can expect that $1 million in umbrella insurance coverage will cost you between $150 and $300 per year.

Factors that affect the cost of umbrella insurance

Any or all of the following factors can affect the rate you pay for umbrella insurance.

Coverage amount

You can generally purchase between $1 million and $5 million in umbrella insurance coverage. The higher the coverage amount you choose, the more your policy will cost, while lower coverage amounts have smaller premiums.

Existing policy limits

The limits of your auto and homeowners insurance policy also play a role. If your policy has lower limits, the umbrella insurance provider will need to pay out more if you’re sued. As a result, you’ll likely be charged a higher premium for coverage.

If your existing home insurance policy has higher limits, you may get a discount on your coverage, as there’s less of a chance your umbrella insurance will need to kick in and pay for damages.

The insurer

Insurance costs vary by provider — and often by quite a bit. Some insurance companies also offer discounts, which can help reduce your premium. Examples include autopay discounts, which reward you for setting up automatic payments, and bundling discounts, which give you a lower premium if you hold multiple policies with the same insurer.

Your risk level

Risks inherent to your property and its residents also factor into the rate you pay. If you own certain breeds of dogs, for example, that could increase your chance of getting sued and therefore mean a higher premium. Owning a pool or trampoline or regularly hosting parties or events may also increase your costs.

Some types of properties are riskier than others, like rental properties and vacation homes. If you own more than one property, you’ll generally pay a higher premium for umbrella coverage.^{[3] [4] [5]}

Your credit

Your credit score can also play a role in your insurance costs. Insurance companies may consider people with lower credit scores as riskier to insure and may charge them higher premiums for coverage. People with higher credit scores usually pay less.

Your location

Since the cost of repairs, medical bills, and even litigation vary widely from one location to the next, so does the cost of insurance. You can typically expect higher premiums in more expensive locations. Lower-cost areas may come with lower-cost coverage.

How to Buy Homeowners Insurance in 7 Easy Steps

How to save money on umbrella insurance

If you want the lowest-cost umbrella insurance policy, get quotes from several providers and take advantage of discounts where possible. This may include bundling a new umbrella policy with an existing policy from your provider. You can also work on improving your credit score or opt for a reduced coverage amount.

Where can you buy umbrella insurance?

Most major insurance companies offer umbrella insurance. You can also use an online comparison tool to compare umbrella policies from several providers at once.