Imagine you’re involved in a serious car accident. The other driver is badly injured and the liability coverage offered under your auto insurance policy isn’t enough to pay for his or her medical bills. On top of that, he or she is not able to work for several months during the time it takes to recover, resulting in tens of thousands of dollars of lost wages. If you’re found liable for the accident, you could be sued and forced to pay the remaining balance out-of-pocket.

Unfortunately, unexpected situations like this happen, so it’s best to be prepared. Consider investing in a personal umbrella policy to protect your assets if the worst happens.

How umbrella insurance works

Umbrella insurance kicks in once your normal auto or homeowners liability coverage has been exhausted, protecting you in case of a lawsuit. According to Geico, umbrella policies typically cover injuries, property damage and personal liability, including bodily injury liability (damages to another person’s body) and property damage liability (damage to another person’s property). It can also protect you from lawsuits if somebody is injured on your property and from libel and slander lawsuits. Umbrella insurance may also cover defense attorney fees, which can be pricey.

What it costs

According to, an umbrella policy typically costs between $150 and $200 for the first $1 million of coverage and then about $100 for each $1 million after that.

Putting it into context

Here’s an example – you get into an accident and cause $60,000 of injuries to the other driver. However, your auto policy only covers up to $30,000 for bodily injury liability. It also turns out the person you hit is the CEO of a large company, and is going to lose $500,000 in wages while recovering in the hospital. If the other driver sues you, you could be stuck paying the remaining $530,000 your insurance won’t cover. This is where an umbrella policy would save the day. It will kick in once the $30,000 of liability coverage has been used up, covering the remaining expenses up to $1 million (or more, depending on your policy).