What umbrella insurance can cover, and who should consider it

What does umbrella insurance actually do?

Start with liability. That’s when you’re blamed for someone else’s injury or for damage to their things. Your home and car policies usually include liability coverage. But each one has a limit, the most the insurance company would pay.

An umbrella sits on top of those limits. When a covered claim uses up your home or car liability, the umbrella can pick up where it stops, up to its own limit.

Say you run a red light and badly hurt another driver. Their medical bills and lost pay add up to $700,000, and they sue. Your car policy’s liability limit is $250,000, so it would typically pay up to that much. Without an umbrella, you could owe the other $450,000. With a $1 million umbrella, the umbrella could pay it instead, if your policy covers the claim.

Many umbrella policies can also help pay for a lawyer to defend you if you’re sued. Depending on the policy, that cost may not count against the limit.

What can it cover?

Umbrella policies tend to be broad. Depending on the policy, they often cover:

• Injuries to other people, like a guest who falls down your stairs.
• Damage to other people’s things, like a car or a fence you crash into.
• Some claims that aren’t about injury, like being sued over something you said or posted about someone.
• Claims that happen away from home, sometimes even outside the country.

Say your dog bites a neighbor’s child at a cookout. The family sues for medical bills and scarring. Your home insurance could pay up to its liability limit. If the bills go higher, the umbrella can cover the rest.

Some umbrellas can also cover a few claims your home or car policy leaves out. When that happens, you usually pay a set amount first, a bit like a deductible.

What doesn’t it cover?

An umbrella is about what you owe other people. It isn’t for your own things or your own injuries. It usually won’t pay for:

• Damage to your own home or car.
• Your own medical bills.
• Harm you cause on purpose.
• Claims from running a business, which usually need business insurance.
• Some boats or off-road vehicles, depending on the policy.

Every policy has its own list of exclusions, the things it doesn’t cover. Read yours, or ask us to walk you through it.

Who should consider it?

Anyone can be sued. But an umbrella is worth a closer look if one big claim could eat into what you’ve worked for, like your savings or your home. It’s also worth a look if you:

• Have a teen driver in the house.
• Have a pool, a trampoline, or a dog.
• Host parties or have guests over a lot.
• Own a home or property you rent out to others.
• Coach a team or volunteer where people could get hurt.

Say your teenager borrows the car and causes a crash with several people hurt. Bills from one crash can climb fast. An umbrella can add a layer between that claim and your savings.

The price depends on things like how many homes, cars, and drivers you have. Ask for a quote before you decide it isn’t worth it.

How does it fit with your home and car policies?

Most umbrella policies require you to carry certain liability limits on your home and car first. These are called underlying limits. If yours are lower, you may need to raise them before you can add an umbrella.

Say your car policy has fairly low liability limits. The umbrella company may ask you to raise them first. That can raise your car insurance price, so look at the total cost of both changes together.

You can often keep your umbrella, home, and car policies with the same company, but you don’t always have to. What matters most is that the limits line up.