Umbrella Insurance (Excess Liability): What It Is & What It Covers

While over 90% of American homeowners have home insurance, more than half of them are underinsured, as reported by the Insurance Information Institute (III). The same trend exists in other insurance coverages, including auto insurance, health insurance, business insurance, and watercraft insurance. Generally, insurance exclusions are among the most common reasons for underinsurance in the U.S., per the University of Montana (UMT). Since every insurance policy has some exclusions, the umbrella insurance policy comes in to fill the uninsured gaps as well as provide extra liability coverage on top of your current insurance policy, even when you’re fully insured. Here’s everything you need to know about the umbrella insurance policy.

How an Umbrella Policy Works

Umbrella insurance is a type of policy sold in increments of $1 million to cover liability costs left out by other insurance policies, including home insurance, auto insurance, and watercraft insurance. For example, your homeowners insurance policy may not pay for the resulting costs when your aggressive dog bites a passerby, and this may put you at risk of lawsuits and asset claims. Similarly, the liability coverage on your auto insurance policy may not be enough to cover third-party injuries and lawsuits that come about when your car crashes. Thankfully, in such situations, an umbrella insurance policy can fill the coverage gaps, says the Government Employees Insurance Company (GEICO).

Who Needs Umbrella Policy

The fundamental essence of an umbrella insurance policy is to protect your assets and finances from lawsuits and third-party claims. If you own a high-risk property such as a trampoline, swimming pool, and aggressive dog breed, high chances are that an injury will occur involving them, and you may have to pay a lawsuit judgment. Without umbrella insurance, the court may auction your assets or claim your finances, and this will send you into financial turmoil. According to a recent article published by Forbes, you should carry umbrella insurance coverage if you:

• have domestic employees

• host gatherings in your home frequently

• have a high-risk property such as a swimming pool

• own aggressive pets and larger animals such as horses

• have many high-value assets

Umbrella Policy Exclusions

Although the umbrella policy covers the uninsured gaps in your liability coverage, it does not cover your costs. For example, this policy will not cover the medical costs if your aggressive dog bites you or if your child breaks her spine on your trampoline because it particularly covers third-party liability costs. Even so, there are exceptions in the third-party cases covered by umbrella insurance, and they include, among others:

• If you transmit any infectious disease to your neighbor

• Injuries occurring from negligence or intentional harm

• Damages from criminal activities

• Damages from nuclear radiation

How Much Does Umbrella Insurance Cost?

The average cost of personal umbrella insurance in the U.S. ranges from $150 to $300 per year for a $1 million worth of coverage, and $100 for every additional $1 million, as reported by the Insurance Information Institute (III). Take note that the amount you pay for umbrella insurance depends on several factors, including, among others, insurance provider, amount of coverage, and size of risk. Besides, the amount of umbrella policy you purchase should depend on your coverage needs, including the number of high-value assets you have, the number of high-risk properties you own, and the amount of underinsurance you have on your primary liability coverages. Even so, a $1-million coverage should be enough to get you started.

Pros and Cons of Umbrella Insurance


The main advantage of an umbrella insurance policy is that it covers most of what other insurance policies don’t cover. For instance, umbrella insurance can cover the liability costs resulting from false arrest, malicious prosecution, slander, and invasion of privacy. Such problems usually bring about lawsuits, especially for law enforcement officers, wealthy people, members of charitable boards, and high-profile individuals. Apart from paying for lawsuits, umbrella insurance policy also comes in handy when your current liability coverage is not enough to cover damages.


The downside of this policy is that you must have primary personal liability insurance coverage with required minimum limits to be eligible for the umbrella insurance coverage, according to the International Risk Management Institute (IRMI). Also, you have less control over the amount of umbrella insurance you buy since insurers sell it in increments of $1 million.

Tips to Save on Umbrella Insurance Coverage

Usually, most insurance companies give you discounts or lower insurance premiums if you significantly mitigate the risk. For instance, your auto insurance premiums will reduce if you maintain a clean motor vehicle record (MVR) or perform regular maintenance procedures on your motor vehicle, per the National Association of Insurance Commissioners (NAIC). That said, you can save on your umbrella insurance coverage using the following tips:

• Mitigating risks on your insurance coverages

• Shopping from a cheaper insurance provider

• Raising your deductible

• Earning discounts

• Maintaining a good credit score

Take note that factors such as your age, gender, marital status, and profession can also impact the cost of your umbrella insurance. For example, physicians are among the professionals at the highest risk of being sued, with 34% of them facing a lawsuit at least once in their careers, according to the American Medical Association (AMA).

That’s everything you need to know about umbrella insurance coverage. Do you need more help with your umbrella insurance in La Canada, CA? If so, then contact the experts at Knight Insurance Services. We are ready to assist you with all your insurance needs today.

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