Umbrella insurance works by covering excess liability costs after your auto, home, or other insurance limits have been exhausted. Umbrella insurance can also cover things that are not covered under your other liability policies, like libel or slander.
How Umbrella Insurance Works: Step by Step
1. Someone makes a claim against you
This might happen if you cause a massive car accident, a non-family member gets injured at your home, or if your child or dog seriously injures someone. These liability claims are made against your relevant personal liability coverage, like homeowners liability or auto liability.
2. Your current liability insurance applies up to its limits
After a claim is filed, your auto or homeowners liability coverage will pay up to its limits. Typically, auto and homeowners liability coverage can be bought with limits of no more than $300,000 - $500,000.
3. Your umbrella insurance covers the remaining claim
If the claim against you is larger than what your auto or homeowners insurance will cover, your umbrella policy will step in to cover the remaining balance.
The most basic level of umbrella insurance will cover up to $1 million in excess liability. This is an impressive amount given that umbrella insurance usually only costs between $150 and $300 per year.
To learn more, check out WalletHub's guide to umbrella insurance.