What happens if you are sued? The liability coverage in your homeowners or auto policy will provide you with some coverage to help pay for legal fees and any judgments against you, up to the limit of your policy. However, legal expenses can get out of control quickly. It can be smart to have an extra layer of liability protection outside of your auto liability coverage or homeowners liability coverage.

That’s where personal umbrella insurance coverage comes in. An umbrella policy is a liability policy that can help protect the value of your assets by stepping in when you reach the liability limit of your homeowners, renters, condo, or auto policy. It also gives the policyholder extra coverage against things like libel and slander, which other policies don’t cover.

Understand this type of extra protection with our guide to umbrella coverage.

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What Is Umbrella Coverage?

Umbrella insurance is also called personal liability insurance. It protects you in case you’re sued for damages that are higher than the liability limits set by your car insurance, home insurance, watercraft insurance, or other policies. It helps pay what you owe if you’re sued for a lot of money, serving as a supplement that provides extra liability coverage beyond what’s included in your other policies.

Umbrella insurance is not the same thing as excess liability insurance. Excess liability insurance gives you higher limits on the liability coverage you already have, while umbrella insurance provides additional coverage that’s not included in your base insurance policies, such as covering legal fees for slander and libel.

Some of the incidents that would be covered by an umbrella insurance policy include:

• Auto accidents

• Dog bites

• Swimming pool accidents

• Slip and fall incidents

You are probably eligible for umbrella insurance if you have one or more base insurance policies with minimum coverage amounts, such as homeowners insurance or auto insurance. You might even find that it’s cheaper to buy an umbrella policy than it is to increase the liability limits on all your other insurance.

See more: Best High Risk Homeowners Insurance

How Does Umbrella Insurance Work?

An umbrella insurance policy sits over the limits of the other underlying policies below it. That means the base policy, such as your homeowners or auto insurance, kicks in first when you make a claim and the umbrella kicks in when you hit the maximum limits of your base policy. For example, if you caused a car accident where the car hit a building, you might cause $500,000 in structural damages. Your auto insurance may only have a $250,000 limit, but your umbrella policy would cover the remaining $250,000 and your legal fees.

Unfortunately, umbrella policies don’t cover everything. Umbrella insurance covers:

• Medical bills for other people’s bodily injury

• Funeral costs for other people

• Property damage for other people

• Lawsuits involving slander, libel, defamation of character, and personal attacks

• Legal defense costs

• A tenant’s personal injury or property damage if you’re the landlord of a rental property

It doesn’t usually cover:

• Your own injuries

• Damage to your own personal belongings

• Injuries or property damage to other people if your business is liable for them

• Intentional or criminal acts

• Liability associated with contracts that you entered into

See more: Best Home Insurance Comparison Sites

What Determines Umbrella Insurance Cost?

Several factors determine how much umbrella insurance costs. Insurance companies will consider how much coverage you’re purchasing, the state where you live, and how much risk it will be to the insurance company to write you a policy. The more property you own and the bigger your household, the more your umbrella policy will cost.

However, a personal umbrella policy is usually very affordable compared to other types of insurance when you consider how much coverage it provides. Your first $1 million of umbrella insurance typically costs $150 to $300 per year, according to the Insurance Information Institute. Insurance rates for $2 million in coverage are usually about $75 more, and every extra million beyond that will cost you about $50 each. Umbrella policies are usually sold in $1 million increments.

Why is it so cheap? Part of the reason is that you have to have a homeowners policy and an auto insurance policy already before insurers will let you buy an umbrella policy. In some cases, you may need to carry the most liability coverage available under your homeowners and auto policies before you can get umbrella coverage.

See more: Home Insurance Without Inspection

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Is Umbrella Coverage Worth It?

Anyone who’s at risk of a lawsuit can benefit from umbrella insurance. In our litigious society, buying umbrella coverage to complement your existing policies can make a lot of sense. Weigh your risks and choose wisely.

Need a new homeowners policy to go with your umbrella coverage? Insurify allows users to compare home insurance quotes from lots of top insurers to help you find the policy that fits your lifestyle.