Everything You Need to Know About Umbrella Insurance

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Written by Lindsay VanSomeren Edited by Lequita Westbrooks

Updated March 28, 2024

How confident are you that you’d be able to handle the fallout from a potential lawsuit? After all, it’s easier than you might think to cause significant damage to someone without meaning to. When the unexpected happens, homeowners or auto insurance can help, but only up to the limits of the policy you’ve purchased.

Umbrella insurance can provide protection beyond your existing insurance policies for damage or injuries you’re responsible for. When you purchase an umbrella insurance policy, this additional coverage kicks in to cover liabilities your other policies can’t.

Coverage is generally affordable, and umbrella insurance can be a lifesaver if you have assets and savings you want to protect. We’ll cover what you need to know in the sections below.

Umbrella Insurance and How It Works

Umbrella insurance works quite a bit differently than other insurance policies because it’s optional insurance you buy in addition to your other policies. In fact, insurers typically require you to purchase auto and homeowners or renters insurance with relatively high limits before you’re even eligible to buy umbrella insurance.

An umbrella policy covers you and family members in your household, but it may not cover a roommate with their own auto policy. It’s important to verify who’s covered with your insurer.

To see how it works, let’s look at an example. Let’s say your insurer, like most companies, requires you to purchase at least $250,000 in liability coverage on your auto policy before buying an umbrella insurance policy.

Say a family member spins out during a snowstorm and accidentally causes another driver to lose all of their worldly possessions while on a cross-country move — your auto insurance may reimburse them for up to $250,000.

But let’s say they also had a jewelry collection worth $500,000. Your umbrella coverage would kick in to cover the difference.

What Umbrella Insurance Does and Doesn’t Cover

Umbrella coverage can protect you against some of the most expensive insurance claims you could face. That said, there are still limits you should be aware of so you can find other ways to protect yourself if necessary.

The table below highlights the types of things umbrella insurance does and doesn’t cover.

How to Determine If You Need Umbrella Insurance

Umbrella insurance isn’t just for people with high net worths — if you have assets you want to protect or are at a greater risk of being sued, it might be worth it. For instance, if someone sues you for $1 million, a court can order you to sell some of your assets or even garnish future wages to pay a judgment against you.

To see if umbrella insurance is worth the extra cost, experts recommend adding up all your assets (potentially including your home, depending on state laws for exemptions) that could be at risk if someone sues you. If your assets exceed your auto or home policy limits, compare it to the policy limit you need to buy for an umbrella policy.

For example, if you have $500,000 in assets but only have $250,000 worth of liability coverage on your auto policy, you may want to consider buying an umbrella policy.

But you could opt for other types of extra protection in some cases. If you run a small business, for example, errors and omission insurance or general liability insurance might be a better choice. Putting assets in a trust can also work, although it’s best to consult a lawyer.

The Pros and Cons of Umbrella Insurance

If you have the financial means to pay for higher coverage limits on your auto and homeowners policy, spending a few extra bucks on umbrella insurance is a no-brainer for many people. That said, it’s still important to compare the benefits of umbrella insurance to the drawbacks so you know exactly whether it’s a good fit for your situation.

Pros:

• Provides peace of mind
• Coverage is generally affordable
• Financial security if you get sued
• Provides additional coverage for libel and slander

Cons:

• Coverage doesn’t apply to all liability cases
• Doesn’t cover your injuries or your property
• Requires significantly high limits on other insurance products

7 Auto Insurance Companies That Offer Umbrella Insurance

Umbrella insurance works pretty much the same regardless of which insurance company you choose. Since it’s often paired with auto insurance, we’ll cover seven of the best auto insurers offering umbrella liability policies.

State Farm

Umbrella coverage limit: $1 million minimum

Compare.com rating: 4.90 out of 5

State Farm is the largest insurer of passenger cars in the U.S., covering about 18% of all vehicles, according to the National Association of Insurance Commissioners (NAIC). It offers a wide variety of other insurance products as well, making it an easy one-stop shop for all your coverage needs.

USAA

Umbrella coverage limit: $1 million–$5 million

Compare.com rating: 4.91 out of 5

You’ll need to be a servicemember or connected in some way to the military to be eligible for coverage through this highly rated insurer. You’ll also need an auto insurance policy with USAA before you can purchase an umbrella policy. But any other policies you have (such as homeowners insurance) can be with other insurers.

Erie

Umbrella coverage limit: $1 million minimum

Compare.com rating: 4.75 out of 5

Erie Insurance is available in only 12 states in the eastern half of the country. But it has some of the highest customer satisfaction ratings in the industry and offers plenty of discounts and savings — including up to 25% off for bundling together multiple insurance policies.

GEICO

Umbrella coverage limit: $1 million

Compare.com rating: 4.65 out of 5

While GEICO’s customer service ratings aren’t as strong as the insurers discussed above, it has one important thing going for it if you’re concerned about large lawsuits: the highest AM Best rating for financial stability, A++. That means the company is financially stable and can pay out claims.

Auto-Owners

Umbrella coverage limit: $5 million maximum

Compare.com rating: 4.43 out of 5

Auto-Owners is another highly rated regional insurer that’s currently available only in about half of U.S. states. Older adults — or those without vehicles of their own — may qualify for special discounts on an umbrella policy that can help bring the cost down even further.

Progressive

Umbrella coverage limit: $5 million maximum

Compare.com rating: 4.73 out of 5

Progressive is available throughout the country and may be an especially good choice if you prefer a company with a strong digital presence. Progressive’s mobile app comes highly rated, making it easy to get help and manage your insurance anytime you need it.

Amica

Umbrella coverage limit: $1 million

Compare.com rating: 3.90 out of 5

Amica may be a good fit if you’re looking for a hassle-free experience. The insurance company ranked the highest for claims satisfaction in 2023 by J.D. Power. It also has an A+ (Superior) AM Best financial stability rating.

How Much Coverage You Need Before You Can Purchase an Umbrella Policy

Insurance companies require you to have a certain amount of coverage on your auto and homeowners (or renters) policy before you can buy umbrella insurance. In general, you’ll first need to have at least $250,000 in auto liability insurance and $300,000 in home insurance liability coverage.

But limits may vary by insurer, and some insurers require even higher coverage limits. For example, USAA requires $300,000 in auto liability coverage before you’re eligible to buy umbrella coverage. Check with your preferred insurance company to be sure.

​​How to Determine How Much Umbrella Coverage to Buy

Again, most financial experts recommend purchasing enough umbrella coverage to cover all your assets to protect yourself if someone files a lawsuit against you.

The biggest expense with buying umbrella insurance — ironically enough — probably isn’t the umbrella policy itself, but the higher auto and homeowners coverage limits you’ll first need to purchase.

Umbrella policies typically run between $150 and $300 per year for a basic $1 million policy, with each million-dollar increment after that costing less. Other factors that can affect your insurance cost include your specific insurer, how many homes you own, and if you have high-risk vehicles, like speedboats.

How to Find the Best Umbrella Insurance

Generally, you’ll choose your umbrella insurance company based on your existing insurer, since it’s an add-on product. For example, USAA won’t let you purchase an umbrella policy — even if you have acceptable coverage limits elsewhere — unless you have a USAA auto policy.

Since umbrella insurance makes up a small — but important — aspect of your overall insurance picture, it’s best to choose your insurance company primarily based on its auto and homeowner insurance offerings instead of shopping specifically for an umbrella policy. Here are some ways to do that:

• Buy your insurance policies with the same company to limit coverage confusion and maximize your discount opportunities.
• Gather insurance quotes from several companies every time your policy is up for renewal to find the best rates and coverage options.
• Enroll in your insurer’s telematics program (if they have one) to get a nice discount and learn ways to improve your driving. This will help reduce your chances of getting into an accident and filing a claim, which leads to higher rates.

Umbrella Insurance FAQs

Umbrella insurance can be confusing, so here are some quick answers to help you out.

Is an umbrella policy worth it?

It depends. Umbrella insurance policies are worth it if you have significant assets valued higher than your current insurance policy liability limits. They don’t cost very much and can ensure you’re as protected as possible against lawsuits that can easily eat away the bulk of your wealth.

Do umbrella policies have deductibles?

No. Umbrella policies don’t have a deductible, but any underlying insurance you have — such as auto or homeowners insurance — typically do. You’ll need to pay that deductible for that specific policy to kick in, and once those limits are exhausted, an umbrella policy will automatically kick in to cover the rest.

Are liability coverage and umbrella insurance the same?

Yes. Umbrella insurance is just extra liability coverage that applies on top of your other policies. It may also cover some situations your other policies won’t, such as if someone sues you for libel or slander.

What’s the most that umbrella insurance will pay?

Most umbrella insurance policies offer coverage in $1 million increments, ranging from $1 million to $5 million total. If your policy offers a maximum of $5 million in coverage, that’s the limit of how much it’ll pay after the limits of your other policies are first exhausted.

Methodology

Data scientists at Compare.com analyzed more than 50 million real-time auto insurance rates from more than 75 partner insurance providers in order to compile the quotes and statistics seen in this article. Compare.com’s auto insurance data includes coverage analysis and details on drivers’ vehicles, driving records, insurance histories, and demographic information.

All the quotes listed in this article have been gathered from a combination of real Compare.com quotes and external insurance rate data gathered in collaboration with Quadrant Information Services. Compare.com uses these observations to provide drivers with insight into how auto insurance companies determine their premiums.

Sources

1. Insurance Information Institute, “What is an umbrella liability policy?,” Accessed March 21, 2024.
2. Military Officers Association of America, “Do You Need an Umbrella Insurance Policy?,” Accessed March 21, 2024.
3. National Association of Insurance Commissioners, “What’s an Umbrella Policy?,” Accessed March 21, 2024.
4. Nolo, “Don’t Sue Unless You Can Collect the Judgment,” Accessed March 21, 2024.
5. NW Insurance Council, “Umbrella Policy Coverage,” Accessed March 21, 2024.
6. National Association of Insurance Commissioners, “Property and Casualty Insurance Industry 2023 Top 25 Groups And Companies By Countrywide Premium,” Accessed March 21, 2024.
7. J.D. Power, “Auto Insurance Customer Satisfaction Plummets as Rates Continue to Surge, J.D. Power Finds,” Accessed March 21, 2024.
8. AM Best, “Rating Services,” Accessed March 21, 2024.

Lindsay VanSomeren Insurance Writer

Lindsay VanSomeren is a freelance personal finance writer living in Suquamish, WA. Her work has appeared with FICO, Credit Karma, The Balance, and more. She enjoys helping people learn how to manage their money better so they can live the life they want.