ABA Family Legal Guide

Home Ownership

Property Insurance and Other Protections

Liability Insurance

What is an umbrella liability policy?

An umbrella liability policy, also called a personal excess liability policy, is designed to protect you in case of a big judgment that would quickly eat up your regular policy coverage. These policies are relatively inexpensive because the insurers are betting you'll never need to file a claim. Their coverage takes up where your home and auto policies leave off; thus, you will need to have certain levels of basic home and auto liability insurance before you can qualify for an umbrella policy. Generally, these would be $100,000 in liability coverage on your homeowner's policy and $250,000/$500,000 on your auto ($250,000 per person, $500,000 per accident; or sometimes $300,000 in single-limit coverage).

You also have to meet certain eligibility requirements, such as owning no more than four cars. If you've been convicted for driving under the influence of alcohol in the past three years, you're not likely to get approved for coverage.

Some umbrella policies pay the deductible amount that isn't covered by basic policies. Others impose a deductible, called a retained limit, in certain circumstances. For example, if your homeowner's policy doesn't cover slander or libel (most don't without a special endorsement), an umbrella policy with a retained limit might require you to pay the first $250 of a judgment for slander. The other kind would pay from dollar one. Note that most umbrella policies don't cover injuries you cause with your motorcycle and certain watercraft, such as high-powered speedboats.

Your premium for the umbrella policy will be determined based on the number of houses, rental units, and vehicles you own. If you have one house and two cars, a typical premium costs $100 to $150 for $1 million in coverage. You will get $2 million in coverage for only about $50 to $100 more in premium costs.