Umbrella Insurance 101

Umbrella insurance – what's that?  I can't imagine insuring an umbrella!  Oh, that's not it.  So what is umbrella insurance?

Umbrella insurance is a liability insurance that covers you for liability in excess of the coverage that you already have as part of your existing insurance policies (auto, homeowners, renters or boat insurance.)  If you are found responsible for an accident that has property damage or bodily injury, the judgments against you can accumulate pretty quickly.  And that is just for legitimate claims – what if you are involved in a situation where someone makes a fraudulent claim against you?  One bad accident could wipe out all your savings, assets, and even result in a judgment against your future earnings.

Umbrella liability insurance acts as a broad coverage that is on top of your existing liability coverages (hence the umbrella name.)  Umbrella coverage does not kick in until you have exhausted the limits of your existing coverage, and because of that most umbrella policies require that you maintain certain level of liability coverage on the underlying policies.  The good news is, liability insurance is really inexpensive!  Our family's policy is about $274 a year ($23 a month).

I think that umbrella insurance is part of any good insurance plan, but there are some times when it seems particularly necessary.  If you own a rental property, there are any number of ways that claims could be made against you.  Some property management companies actually require umbrella insurance of their property owners.  If you have any particularly dangerous stuff on your property, such as a trampoline or a swimming pool, your need for excess liability insurance is higher.

USAA's June Walbert does a great video on umbrella insurance.  It doesn't embed, but you can find it here.  I recommend umbrella insurance to my friends and family and you should seriously consider if it is something for you.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • I purchased my Personal Umbrella Liability from Wright USA. Great insurance available for us Feds.