Umbrella Insurance: The Cheap Coverage Most People Skip (2025)

There’s a story that still haunts me from adjusting days. Wasn’t even my case but I heard about it constantly.

Homeowner’s teenage son had a pool party. One kid dove into shallow end, hit head on bottom. Paralyzed. The lawsuit was massive. Medical bills. Lifelong care costs. Pain and suffering. Lost future earnings for a kid who was never going to have a normal career.

Homeowner had $300,000 liability coverage coverage. Sounds like a lot right?

Settlement was over $2 million.

Insurance paid $300,000. He was personally responsible for the rest. Family lost their house. Their savings. Everything they’d built. Gone.

An umbrella policy would have covered the difference. For like $200-300 a year.

What umbrella insurance actually is

Extra liability coverage that sits on top of your existing insurance. Auto, homeowners insurance, renters insurance. Kicks in when those policies’ limits run out.

Think of it as safety net for your safety net. Auto might have $300,000 liability. Homeowners another $300,000. But something really bad happens—serious accident, major lawsuit—those amounts disappear fast. Umbrella catches what falls through.

Typically starts at $1 million coverage. Can go to $2 million, $3 million, $5 million, whatever you need.

What it covers

Auto accidents—you cause serious crash injuring multiple people, auto liability runs out, umbrella picks up rest.

Injuries on your property—someone falls down stairs, kid hurt on trampoline, dog bites someone, pool party nightmare. Homeowners liability not enough? Umbrella covers more.

Accidents away from home—playing golf and hit someone in head with ball. Hiking and accidentally start wildfire. Weird stuff happens.

Defamation—someone sues for something you said or wrote. Happens with social media now.

What it doesn’t cover: intentional damage, illegal activity, business claims, professional services liability. Doesn’t cover your own injuries or property—just what you might owe others.

Why it’s surprisingly cheap

$1 million umbrella policy typically costs $150-300 per year. That’s it. Million dollars of protection.

Why so cheap? Because they rarely pay out. Your underlying auto and homeowners handle most claims. Umbrella only kicks in for catastrophic stuff exceeding base coverage. Rare. Low probability = low premiums.

Adding more coverage also cheap. $1 million to $2 million might only add $50-100 annually. Marginal cost decreases as you go higher.

Cost of nice dinner each month for $1-2 million protection against lawsuit that would otherwise destroy your finances.

Who needs umbrella insurance

Standard advice: have umbrella if you have assets to protect. True. Someone wins judgment against you exceeding insurance limits, they can come after house, savings, investments, future wages.

But I’d say: need umbrella if you have anything to lose.

You own a home. You have savings or investments—any amount. You have future earning potential. You have pool, trampoline, “attractive nuisance.” You have a dog. You have teenage drivers. You entertain guests. You do activities that could injure someone.

If “$1 million lawsuit would ruin my life” is yes, you probably need umbrella insurance.

How it works with other policies

To get umbrella you typically need minimum liability amounts on auto and homeowners first. Umbrella insurer wants base policies handling normal claims.

Common requirements: Auto $250,000/$500,000 bodily injury and $100,000 property. Homeowners $300,000 liability.

Might need to increase base coverage to qualify. Good news: extra cost usually offset by multi-policy discount.

How much do you need

General rule: umbrella at least equal to net worth. Assets minus debts. $800,000 in home equity and retirement? At least $1 million umbrella.

Also consider future earnings. You’re 35, expect 30 more working years at $75,000? That’s $2 million+ someone could potentially pursue.

For most people $1-2 million is plenty. Premiums not much more for higher amounts if worried.

Why I have it

$1 million umbrella. About $200 a year. Don’t have pool. No trampoline. No dog unless you count chickens which insurance doesn’t care about. Not particularly worried about being sued.

But I have a house. Have savings. Occasionally have people over. Drive a car. Stuff happens. Peace of mind knowing even catastrophic lawsuit wouldn’t completely destroy me is worth $200 a year.

When I worked insurance I saw what happens to people facing liability beyond coverage. Lives ruined. Families destroyed. Decades of work wiped out. All preventable for cost of streaming subscription.

That pool party

If that homeowner had $2 million umbrella—$300-400 a year—family would have kept their house. Kept their savings. Life disrupted by lawsuit but not destroyed.

Instead sold everything. Because he didn’t know umbrella insurance existed or didn’t think cost was worth it.

Think about that case a lot. How preventable it was.

Liability is being weird today—keeps following me room to room—but if you have anything to protect, get umbrella insurance. Cheap. Protects against catastrophic scenarios regular policies can’t handle. Just get it.