What Is Umbrella Insurance and Do I Need It? Answers To FAQs

A single accident or lawsuit can have devastating financial consequences. While your auto, homeowners, or renters insurance provides essential liability coverage, it may not be enough in a serious situation or litigation. That’s where an umbrella insurance policy comes in; it’s a powerful, affordable way to help protect your assets and future income.

For instance, if you own a home with a pool and a houseguest sues you after suffering injury or loss related to the pool, your homeowners insurance may not cover your full financial liability resulting from the lawsuit. An umbrella insurance policy could cover the shortfall.

Insurance protection is a key part of wealth management, along with financial planning, tax planning and preparation, estate planning, and investment management.

Below we answer the most frequently asked questions regarding umbrella insurance.

Q: What is umbrella insurance?

A: Umbrella insurance is a type of personal liability insurance that extends beyond the limits of your existing policies. It kicks in when the liability coverage on your auto, home, or other insurance is exhausted. It also covers some claims that your base policies might not, such as libel, slander, or false arrest.

Think of it as a financial safety net that catches you when your standard insurance falls short.

Q: What does umbrella insurance cover?

A: Umbrella insurance typically includes:

• Bodily injury liability: Covers medical bills and lawsuits if someone has an injury because of your actions or negligence.
• Property damage liability: Covers damage to someone else’s property.
• Personal liability: Covers claims like defamation, false arrest, or invasion of privacy.
• Landlord liability: Covers incidents related to rental properties you own.

Note that there are claims that umbrella insurance typically doesn’t cover. These include your own injuries, damage to your property, business losses, or intentional harm.

Q: Who should consider umbrella insurance?

A: While anyone can benefit from umbrella insurance, it may be worth considering if you think you fit any of the following scenarios:

• Homeowners: You’re liable for injuries on your property. Example: You host a birthday party and a guest slips on your wet patio, suffering a serious injury. They sue you for $600,000 in medical expenses and lost wages. Your homeowners insurance covers $300,000. Umbrella insurance can cover the remaining $300,000, which may help mitigate financial risk.
• Frequent hosts: More guests mean more chances for accidents.

• Landlords: Rental properties come with added liability risks. Example: You’re renting out a home where the tenant gets carbon monoxide poisoning from a faulty furnace. She sues  for negligence, seeking $1.2 million. Your landlord policy has a limit of $500,000. Without umbrella insurance, you’d be responsible for the remaining $700,000. With a $1 million umbrella policy, that gap is covered.
• Dog owners: Dog bites can lead to expensive lawsuits.

• Parents of teen drivers: Teens are more likely to be involved in accidents. Example: Your teenage child causes a serious accident while driving your car, resulting in a $1 million lawsuit. Your auto policy covers $250,000. An umbrella policy can provide coverage for the remaining $750,000, offering financial support in the event of a claim.
  
• High net-worth individuals: More assets mean more to lose.

• Active social media users: You’re more exposed to defamation claims. Example: You post a negative review of a local business online. The owner sues you for defamation, seeking $250,000 in damages. Your homeowners policy doesn’t cover libel or slander, but your umbrella policy does. It covers legal fees and any settlement, protecting your finances and reputation.

Q: How much is umbrella insurance?

A: Umbrella insurance is surprisingly affordable. The average cost of umbrella insurance for a $1 to $2 million policy is about $380 per year.¹ However, the true cost depends on the potential risk involved, net worth, location, and more. Given the protection it offers, it’s a smart investment for  financial confidence.

Q: How do you go about getting coverage?

A: Umbrella insurance isn’t just for the wealthy; it’s for anyone who wants to protect their financial future. Whether it’s a car accident, a slip-and-fall, or an unexpected lawsuit, umbrella insurance can help you weather the storm without losing your financial security.

At Mercer Advisors, we offer insurance solutions as part of a comprehensive financial plan. If you have insurance questions or needs, talk to your wealth advisor.

If you’re not a Mercer Advisors client and are interested in having a personalized financial plan for growing your assets and achieving your long-term goals, we can help. Additionally, our specialized insurance guidance can help you protect those assets with insurance solutions such as umbrella, property and casualty, natural disaster, and other policies. Let’s talk.

¹ “How Much Umbrella Insurance Do I Need?” Kiplinger, April 23, 2025.

Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. Hypothetical examples are for illustrative purposes only. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

Mercer Global Advisors has a related insurance agency. Mercer Advisors Insurance Services, LLC (MAIS) is a wholly owned subsidiary of Mercer Advisors Inc. MAIS provides individual life, disability, long term care coverage, and property and casualty coverage through various insurance companies. For Mercer Global Advisors clients who wish to purchase insurance products, MAIS has entered into a non-exclusive referral agreement with Strategic Partner(s), where the Strategic Partner will provide necessary services relative to the marketing, placement, and servicing of the insurance products, including without limitation preparing and presenting illustrations, supporting the underwriting process, assisting with the completion and execution of applications, delivering policies, and servicing in-force business. MAIS and the Strategic Partner will be listed as either “agents” or “co-agents” on the policies. While Mercer Global Advisors does not receive a referral fee, Strategic Partner receives a percentage of the commission revenue. MAIS and Strategic Partner do have a revenue sharing agreement.