What is umbrella insurance, and how does it work?
Updated June 30, 2025 . AmFam Team
What is umbrella insurance?
Umbrella insurance is a policy that helps provide another layer of financial protection after a liability claim has exhausted your existing policy’s limits. Whether opting for personal, farm and ranch or commercial umbrella insurance, an umbrella policy helps provide peace of mind after an unexpected loss.
When it rains, an umbrella provides extra protection against the elements. When you have an expensive claim that exceeds your home, auto or renters liability limits, an umbrella policy provides additional financial protection against the unexpected. Thankfully, American Family Insurance can help you find the right umbrella insurance policy for your needs.
What is umbrella insurance?
A Personal Umbrella Liability Policy provides additional liability coverage over underlying insurance policies, such as a homeowners, personal auto, motorcycle, watercraft or renters policy. Here’s how it works. Imagine you have an auto policy with $250,000 in bodily injury liability coverage. But one day, you accidentally hit and seriously injure a bicyclist resulting in $500,000 in medical expenses. Your auto policy would cover the first $250,000, but you’d need to pay the remaining $250,000 out of your own pocket. You might even have to use your retirement funds or sell personal property to cover those costs. Not so with umbrella insurance.
After your auto policy limit is exhausted, your umbrella insurance kicks in and pays the rest. Umbrella insurance also offers financial protection for things not covered by your home, auto or renters policies. For example, if you leave a review online and are sued for libel, umbrella insurance can help pay for your legal defense! And even if you’re found guilty, your umbrella policy can help pay for the settlement up to your policy limit, of course.
That’s right, umbrella insurance covers libel, slander and false arrest, as well as defense or settlement costs if you're found financially liable for someone else's injury even if the injury was caused by your child or dog! It’s extra liability protection that goes where you go, including internationally, where you might not be covered by your other policies. Plus, umbrella insurance can be a lot more affordable than you might think. For instance, you might even be able to get a policy for less than the cost of a weekly trip to the coffee shop or a monthly subscription to your favorite streaming service.
And who is umbrella insurance for? Everyone! You should consider an umbrella policy if you, have assets you’d like to protect, like a car, property or retirement account. Own a home, condo or rental property. Have kids or a dog. Have a pool, trampoline, snowmobile, ATV or boat. Have hobbies that include hunting, traveling or coaching youth sports. Frequently host large gatherings or post on social media.
Ready for more peace-of-mind protection? Contact your American Family agent today for your umbrella insurance quote.
Customers who bundle home, auto, life and umbrella insurance can save up to 30% on their home and auto.* Find out how much you could save.
How does umbrella insurance work?
Once your primary policy covering the claim has been exhausted, your umbrella insurance helps cover your remaining losses up to your umbrella policy’s limits.
For example, you get in an auto accident, resulting in a $600,000 settlement to help pay for accident-related medical bills. Your auto policy’s bodily injury liability limits are $500,000 and your personal umbrella policy’s limit is $1 million .
Your auto policy’s bodily injury liability coverage may pay up to $500,000 for your damages. Once paid, your personal umbrella insurance may help cover the balance. Without an umbrella policy in place, you would owe $100,000 or more out of pocket in the same scenario.
What does umbrella insurance cover?
Whether opting for commercial, farm and ranch, or personal umbrella insurance, the coverages help financially protect you from liability claims. By policy type, the following coverages are included:
Personal umbrella insurance
- Bodily injury liability
- Defense costs
- Landlord liability
- Personal injury offenses
- Property damage liability
Learn more about how personal umbrella insurance helps financially protect you from unexpected losses.
Commercial umbrella insurance
- Bodily injury liability
- Defense costs and attorneys’ fees
- Global coverage for suits brought in the U.S.
- Limited contractual liability
- Property damage liability
- Personal and advertising injury
Discover more about how commercial umbrella insurance helps protect your business.
Farm and ranch umbrella insurance
- Bodily injury liability
- Defense coverage
- Personal injury
- Property damage liability
Find out how farm and ranch umbrella insurance helps protect your livelihood.
Umbrella insurance coverage examples
Umbrella insurance helps cover accidents related to your primary policies’ liability protections. While not exhaustive, umbrella insurance may help cover the following accidental events:
- Your dog jumps on a mail carrier, resulting in costly medical bills.
- James, your teen driver, hits the gas instead of the brakes, sideswiping seven cars and injuring several people.
- Visitors carrying expensive personal items slip on your icy driveway, leaving you liable for their costly medical and property damages.
- You accidentally injure someone in an ATV accident.
Who needs umbrella insurance?
Personal, farm and ranch, and commercial policyholders may benefit from an umbrella policy. Accidents are a part of life, whether at home or work. Umbrella insurance provides additional financial protection beyond your liability insurance coverages.
Who does an umbrella policy protect?
Regardless of the umbrella policy type, personal, farm and ranch, or commercial, it may protect you and other eligible parties. For example, a personal umbrella policy may cover you, your spouse or domestic partner, and relatives living with you.How much umbrella insurance do I need?
You're responsible for damages if a lawsuit or settlement exceeds that of your existing policy. Umbrella insurance helps protect what you have from those types of losses.
Getting enough umbrella insurance to protect your net worth is typically standard. Contact your American Family Insurance agent to determine a suitable limit if you have additional risks, such as a trampoline in your backyard.
Umbrella insurance requirements
An underlying policy is required to buy umbrella insurance, whether commercial, farm and ranch, or personal umbrella insurance. However, those limits depend on the umbrella policy you want to purchase.
For example, homeowners insurance policyholders must have a liability coverage minimum of $300,000.
How do I buy umbrella insurance?
Contact your American Family Insurance agent with questions about your underlying policy requirements and to sign up for coverage. You can also start an online quote today.
Life’s better when you’re under our roof.
This information represents only a brief description of coverages, is not part of your policy, and is not a promise or guarantee of coverage. If there is any conflict between this information and your policy, the provisions of the policy will prevail. Insurance policy terms and conditions may apply. Exclusions may apply to policies, endorsements, or riders. Coverage may vary by state and may be subject to change. Some products are not available in every state. Please read your policy and contact your agent for assistance.
*Customers who bundle home, auto, life and umbrella policies may save up to 30% on their home and auto policies together (as of December 2024). Discounts may vary by state, property, policy form and company underwriting the home and/or auto policy. Discounts may not apply to all coverages on a home or auto policy. Discounts do not apply to umbrella or life insurance policies.
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