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How Much Umbrella Insurance Do I Need?

how much liability insurance do i need

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Many drivers want to ensure they’re fully protected in the event of a car accident or other disaster. If this sounds like you, you might have heard the term “umbrella insurance.” Umbrella insurance can provide an extra layer of financial security, but it’s important to understand exactly how much you need.

What Is Umbrella Insurance?

Umbrella insurance, also called excess liability or personal liability insurance, kicks in once you’ve exhausted your other insurance policies. It’s a catch-all insurance that supplements existing policies if your liability exceeds the limits of your standard coverage. Some insurance providers write umbrella policies that don’t just make up the difference but also cover situations other types of insurance don’t address.

What Umbrella Insurance Covers (and What It Doesn’t)

Despite the broad scope of umbrella insurance, everything it covers can be sorted into three categories:

  • Bodily injury liability: This covers medical bills and other expenses that result from injuries a person sustains during an accident for which the policyholder is liable. For instance, you could be found at fault for your dog biting a neighbor, a guest slipping on your sidewalk, or a vehicle accident you caused.
  • Property damage liability: This covers the costs of repairing or replacing physical property that is damaged during an accident for which the policyholder is liable. The most common example is the damage caused to another vehicle in a collision.
  • Personal liability: This covers other damages for which you could be sued. For instance, claims of slander, libel, and mental anguish all fall into the category of personal liability.

Still, umbrella insurance doesn’t cover everything. It will not cover criminal behavior or intentional acts, and your specific policy might exclude certain dog breeds or types of vehicles from its coverage. Most notably, it does not cover your own expenses.

Imagine you are the at-fault driver in a vehicle accident. Your car is totaled, and both the other driver and their passenger sustain significant injuries. Your vehicle liability insurance has a limit of $25,000 bodily injury per person, $50,000 bodily injury per accident, and $20,000 property damage per accident. The other driver makes a claim for $25,000 for their injuries and $30,000 for their passenger’s medical bills.

Umbrella insurance would cover the extra $5,000 in medical bills that your auto insurance does not pay. However, it will not help you repair or replace your vehicle, and it won’t pay your hospital bills. Because umbrella insurance is a type of liability insurance, it only covers situations where another person has filed a claim against you.

Do You Need Umbrella Insurance?

Here are some questions to ask yourself when deciding whether to purchase umbrella insurance:

  • What are the limits of my current policies? Start by reviewing your existing policies, including your home and auto insurance. Make note of any liability coverage limits and see how they compare to the average cost of auto insurance claims and other liability claims.
  • How likely am I to be sued? Some drivers, vehicles, and properties are riskier to insure than others. Insurance companies know this and adjust their rates accordingly. You can use the same type of risk assessment to estimate how likely you are to be in a situation where someone else sues you for bodily injury or property damage.
  • How much can I afford to pay out of pocket? Maybe the likelihood of an accident is low, but it’s best to be prepared. Review your finances and consider how well you could weather a large and sudden expense.
  • What assets do I need to protect? If you do not have enough cash to cover a claim settlement, you might have to drain your investment, savings, or retirement accounts to make up the difference. Your home and vehicle might be protected, depending on your state. However, your future income could be at risk. In many situations, creditors can garnish up to 25% of your disposable income.
  • How much will I pay for umbrella insurance? Umbrella insurance can be surprisingly affordable — especially when you take into account what it covers. A $1 million policy, for instance, often costs less than $300 per year. You might find even better rates from insurers that offer multi-policy discounts.

When weighing the cost of umbrella insurance, remember it’s not a standalone policy. Because umbrella insurance only pays out when you’ve exhausted other options, it must be attached to an existing home or auto policy. Further, that policy must meet certain minimum coverage requirements. A common prerequisite is $250,000 of liability insurance on an auto policy and $300,000 on a homeowners policy.

Umbrella insurance might be especially beneficial for youth sports coaches, landlords, business owners, dog owners, hunters, skiers, and surfers. It also makes sense for people with substantial assets, savings, or potential future income to protect.

How Much Umbrella Insurance Do You Need?

In general, your umbrella policy should match your net worth. Factor in all your financial accounts, real estate, personal property, and expected future income. It’s better to have too much insurance than not enough, so err on the side of caution. If you are not sure what to count or how to make this calculation, an insurance agent can help.

Umbrella insurance typically comes in $1 million increments, with a minimum amount of $1 million. You are likely to need more than the minimum if you own recreational vehicles, luxury vehicles, investment properties, or “attractive nuisances” such as a trampoline or pool. Activities like hunting and skiing increase your risk of causing someone else injury. Landlords, public figures, board members, and kids’ coaches are also more likely to be sued than the average person.

If financial security is among your top priorities, umbrella insurance is one of the best investments you can make. It’s among the most affordable types of insurance, and it offers extraordinary benefits in the event of an accident or a lawsuit. Talk to your insurance agent to see if umbrella insurance makes sense for your lifestyle and budget.

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

We’re here to help you simplify car care and save, so this post may contain affiliate links to help you do just that. If you click on a link and take action, we may earn a commission. However, the analysis and opinions expressed are our own.


About the Author

FIXD Research Team

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

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