Should You Get an Umbrella Policy If You Have Car Insurance?
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Car insurance can be helpful after a car accident, but it only protects you up to your coverage limits.
According to some estimates, 13% of all liability settlements are for $1 million or more — an amount most car insurance policies simply cannot match.
If you have a lot of assets and drive often, you put yourself at a higher risk of getting into one of these costly accidents. An umbrella policy can help. These provide extra liability coverage to protect you against expensive accidents.
How does an umbrella policy work?
Car insurance has several components, but most states require bodily injury liability (BI) and property damage liability (PD). These cover the other people and property that are harmed in an accident. An umbrella policy financially protects you when your PD and BI limits aren't high enough.
For example, the cumulative damage from a multicar accident may cost hundreds of thousands of dollars or more. If you are found responsible for the accident, your liability insurance will pay for the damage — but only up to your specified limits. You'll be responsible for covering the remaining balance out of pocket. If you have an umbrella policy, it will cover the rest of the damage up to its limit.
How much does an umbrella policy cover?
Most umbrella policies include $1 million worth of insurance, which is typically more than auto liability insurance will cover. For example, drivers in New Jersey can purchase up to $500,000 for bodily injury liability and property damage insurance.
You may find an umbrella policy that covers up to $5 million of coverage — or even $10 million of coverage through companies like Travelers Insurance.
Which drivers should get an umbrella policy?
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The following drivers should strongly consider an umbrella policy:
- Drivers with many assets
- Commuters
- Carpoolers
- Ride-share drivers
- Dog owners of a restricted breed
Drivers with many assets
Other drivers and passengers may sue you in court for damages if you're at fault in an accident. You stand to lose a lot if you have considerable assets and you've exhausted your liability coverages.
An umbrella insurance policy can pay for those costs, up to the policy limits, if this happens. It's a good option to consider if you have more than $100,000 in assets.
Another thing to consider: Even if you don't have many assets now, that might change in the future — and courts can take that into account. For example, a recently trained doctor might not yet have a high net worth, but a liability claim could target future earnings they're expected to receive. If you anticipate higher earnings and assets in the near future, then an umbrella policy is worth considering.
Commuters and carpoolers
Generally, driving more increases your chances of getting into a car accident, and driving with people in your car means more people could be involved. If you have a long commute, carpool with someone else or frequently drive with other people in your car, then an umbrella policy could be a good option. After a serious car accident, an umbrella policy would cover extra liability costs.
Ride-share drivers
Ride-share drivers are typically covered under personal auto insurance policies along with the ride-share company's own insurance. But there's still a gap in coverage that leaves drivers vulnerable to a liability claim.
Some companies offer endorsements or add-ons for ride-sharing, but they're not available in every state. An umbrella policy may financially protect you if you drive for a company such as Uber or Lyft in a state where you cannot get coverage. But check with the insurer before signing up, and calculate whether the costs make sense compared to how much you expect to earn from the job.
Dog owners of restricted breeds
Homeowners insurance companies consider certain dog breeds risky and may exclude them from your policy. If your dog injures another person, you could be on the hook for any resulting medical bills. An umbrella policy can provide liability coverage in these cases — but check with your insurer to be sure.
How much does an umbrella policy cost?
The Insurance Information Institute says that a $1 million policy could cost between $150 and $300 per year. For each $1 million in coverage, the premium increases by $50 to $75 annually.
Your final cost will be influenced by where you live, your age, your job, your driving record and even financial indicators such as your credit score.
For example, a $1 million umbrella policy through Geico would cost $425 per year for a family of four in New York.
Which car insurance companies offer umbrella policies?
The following companies all offer umbrella policies:
- Geico
- State Farm
- Allstate
- Farmers
- Progressive
- Liberty Mutual
- USAA
- American Family
- Nationwide
- Travelers
All of the companies require you to have an auto insurance policy and/or a homeowners policy with them before signing up for an umbrella policy. They also usually require you to have high limits to qualify for an umbrella policy.
Some, like Progressive and State Farm, will allow you to bundle your umbrella policy with your other policies for a discount.
Frequently asked questions
What is an umbrella insurance policy?
An umbrella insurance policy is an extra liability insurance policy that pays for financial damages to others, such as in a car accident. An umbrella policy has much higher limits than a regular insurance policy, often providing $1 million of coverage or more. If your regular liability insurance has been used up, an umbrella policy will kick in.
When will an umbrella insurance policy go into effect?
An umbrella policy will go into effect any time you're the subject of a liability claim and your existing liability insurance coverage is used up. This generally includes auto liability as well as homeowners or other liability claims. For example, if you're at fault in a car accident with $200,000 of damage but you only have $100,000 of liability protection, an umbrella policy will cover the difference.
Is an umbrella insurance policy worth it?
Whether an umbrella insurance policy is worth it is up to you. But people with a high net worth, people who have a family to support or those who spend a lot of time behind the wheel may want to consider an umbrella policy.
Is umbrella insurance cheap?
Umbrella insurance is cheap compared to the amount of coverage you get. A policy with $1 million of coverage (the most common amount) typically costs a few hundred dollars per year.