Umbrella Insurance: Extra Liability Protection Explained

Key takeaways

A personal umbrella policy covers liability and defense costs that your primary insurance does not cover, or that exceed what it will pay.
It covers situations where you are held responsible for bodily injury, property damage or personal injury.
It does not pay for damage to your own home or vehicle, or for punitive damages.
It adds to your auto, homeowners and renters policies. It does not replace them.

What an umbrella policy is

The National Association of Insurance Commissioners (NAIC) says a personal umbrella policy provides coverage for liability and defense costs that your primary insurance, such as auto, homeowners and renters policies, does not cover. It can also pay liability and legal defense costs that exceed the amount your primary policy will pay.

What it covers

Bodily injury you are held responsible for.
Property damage you cause to other people.
Personal injury claims against you.

What it does not cover

Damage to your own home or vehicle. For example, an umbrella policy would not cover hail damage to your car if your auto policy does not.
Punitive damages, such as when someone consciously chooses to drink and drive and injures another person.

Questions to ask before you buy

Which liability limits does the insurer require on my auto and home policies?
How high should the umbrella limit be, given what a lawsuit could put at risk, such as savings, home equity or future income?
What exclusions does the policy list?
Can I add it with the insurer I already use?

Common mistakes

Assuming an umbrella policy replaces your auto or homeowners insurance. It adds to them.
Assuming it pays to repair your own home or car.
Assuming it covers punitive damages.
Buying one without reading its exclusions.

General information only. It is not insurance, legal or financial advice. Rules differ by state and change over time, so confirm details with your state insurance department, your insurer and your policy.

Questions

Is an umbrella policy the same as a higher auto liability limit?

Both raise your liability protection, but an umbrella is a separate policy that adds to your primary policies and may cover some claims they do not. Ask your insurer how each option works for you.

Does an umbrella policy cover damage to my own car?

No. The NAIC says umbrella policies will not pay for damage to your home or vehicle.

Where do I buy one?

Ask your current insurer or agent, and ask for the exclusions in writing.

Sources

NAIC: What's an umbrella policy?content.naic.org
NAIC: Homeowners insurancecontent.naic.org

Informational only. Rules and policy terms change and differ by state and insurer. Confirm details with your policy, your insurer or your state insurance department.

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