Umbrella Insurance: What It Is and How It Works (2025)
Umbrella insurance, or excess liability insurance, covers losses you’re responsible for after reaching your home or auto policy limits.
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Umbrella insurance is useful for people who have assets and savings that exceed a typical auto or home insurance policy limit. For example, the average net worth of U.S. households increased to more than $1 million in 2023.1 But typical limits are $500,000 for home insurance and $300,000 for auto insurance.
Here’s how umbrella insurance can protect your assets and when you should get it.
What is umbrella insurance?
Umbrella insurance, also called excess liability insurance, covers losses you’re responsible for that exceed your policies’ liability limits. When a claim exhausts your underlying — or primary — insurance policies, umbrella insurance protects your assets by paying for additional legal fees or liabilities you owe.3
This type of coverage differs from other personal insurance policies because it’s a supplementary policy. Umbrella policies require an underlying insurance policy listed on the declarations page; you can’t purchase umbrella insurance as a stand-alone policy.3
How does an umbrella insurance policy work?
Umbrella insurance companies typically require you to have an underlying insurance policy before purchasing excess liability coverage. For example, you may need an auto, home, or watercraft insurance policy for the umbrella coverage to supplement.
Then, if someone makes a claim for injuries or property damage against your policy or sues you in excess of your primary policy’s limits, umbrella insurance can cover the excess. And your umbrella insurance only covers additional damages and liability up to its limits.
Umbrella policies usually have at least $1 million in coverage. And it’s often cheaper to purchase an umbrella policy than it would be to purchase $1 million in liability coverage for your home or auto insurance.3
What does umbrella insurance cover?
Umbrella insurance pays for excess liability, like damages you owe to others. It doesn’t cover your own property damage or medical bills. Examples of what umbrella insurance would pay for include:4
Some liability claims your primary insurance won’t pay, such as defamation and libel claims
Additional damages exceeding the policy limits for injuries or property damage you cause
Legal fees your primary insurance doesn’t cover
Umbrella insurance pros and cons
Here are important advantages and disadvantages to consider before buying umbrella insurance.
Who needs umbrella insurance?
You need umbrella insurance if you have assets that exceed your primary policies’ limits. If someone brings a lawsuit against you with damages that exceed your policy limits, you’re responsible for paying excess costs out of pocket.
If your assets’ value doesn’t exceed your policy limits, you probably don’t need umbrella insurance.
You may also need umbrella insurance if your business or home puts you at a higher risk of claims. For example, homeowners with pools and landlords may want umbrella coverage to provide added protection.
Where to buy umbrella insurance
Many insurance companies require you to have an existing insurance policy with them to purchase umbrella insurance. But some insurers may offer stand-alone umbrella policies.
You can usually purchase an umbrella policy online, but you may have to contact your insurance agent or company to modify your existing policies.
Here are some top car insurance companies that offer umbrella coverage.
State Farm: Best for defamation, libel, and slander coverage
American Family: Best for bundling policies
Travelers: Best for international claims
Umbrella insurance FAQs
Here’s what you need to know about split-limit insurance. And check out the answers to common questions about umbrella insurance below.
Is an umbrella policy with insurance worth it?
Yes. An umbrella policy is a relatively affordable way to buy additional liability protection for your auto or home insurance policies. Anyone with substantial assets to protect may find umbrella insurance is well worth purchasing to avoid excessive financial losses in a personal lawsuit.
Who needs umbrella insurance, and why is it important?
Umbrella insurance is important for people with significant assets. If the value of your property exceeds the policy limits on your primary insurance, and you don’t want to pay excess damages and legal costs out of pocket, you should have umbrella insurance.
Can you add umbrella insurance to an existing policy or do you need a separate policy?
Yes, you can add umbrella insurance to supplement an existing policy. In fact, many insurers require you to have existing policies with them.
Can you get umbrella insurance from a different company from your auto insurance?
Not usually. Insurers typically require you to have primary insurance policies with them to buy an umbrella policy. Some exceptions exist, as a few insurers offer stand-alone policies for special circumstances or limits that exceed typical umbrella insurance limits.
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