What Is Umbrella Insurance?

Umbrella insurance (also known as excess liability insurance) is a type of coverage designed to cover potential gaps left by other insurance policies you may already have in place. If you needed to pay for expenses relating to claims that exceeded the coverage provided by existing insurance, umbrella insurance could help cover those costs.

A good way to think about umbrella insurance is as an extra layer of protection in order to help you avoid financial hardship should a major accident or unexpected event happen. It is like a fail-safe to completely protect your personal savings and assets.

What Umbrella Insurance Covers and How It Works

If you were sued for damages that exceed the liability limits of your car insurance, homeowners insurance or other coverages, an umbrella policy would step in to help you pay what you owe.

While this might sound like something that would never happen, it’s more common than you might think.

You might have heard of Georgia’s infamous 2014 Snowmageddon event, where forecasts that called for unusually significant snowfall midweek were largely ignored. When snow began to fall fast and thick around lunchtime, there was a mass exodus of folks trying to commute home from work and school. Combine Atlanta’s existing traffic and congestion problems with untreated roads, bad winter weather and residents with no experience navigating such conditions, and it quickly turned chaotic on the roads.

Now, imagine you were one of those drivers that day. As you tried to get home, your car spun out of control on a snowy hill. You totaled the car next to you — and even worse, several people were badly injured.

The totaled car cost $80,000 to replace. Treatment of injuries cost a combined $800,000. In this situation, you would be responsible for $880,000 in damages … and you carry $300,000 in liability coverage through your car insurance.

The remaining $580,000 would have to come out of your pocket. That’s a major hit — and a good reason to think carefully about purchasing umbrella coverage, which in this case would have stepped in and paid what your car insurance did not cover.

Umbrella Insurance Costs

Coverage limits on umbrella policies typically start at $1 million, and in most cases, go as high as $5 million. Policies can cost between $150 to $400 per year.

Keep in mind that your umbrella insurance may only cover a claim if you maintain the minimum coverage amounts required by your home and auto.

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