You probably carry a fair amount of liability insurance between your homeowners or renters insurance policy and your auto insurance policy. But even those amounts of liability may not be enough if you seriously injure someone or cause a tremendous amount of property damage. That’s why it can be important to carry additional coverage on top of auto, home and other types of liability coverage you may have. An umbrella policy provides you with supplemental liability insurance.
What is it?
An umbrella insurance policy is a type of policy that provides you excess or supplemental liability coverage. It is designed to kick in and cover you in situations where your other liability coverage limits are reached.
Who is it for?
An umbrella policy generally is important for people who have significant assets to protect. For example, if you own a home and other valuable possessions or if you have significant financial assets outside of a retirement account, an umbrella policy can help protect them from having to be liquidated to pay off a judgment.
How does it work?
An umbrella policy is secondary to other liability policies you have, and coverage only kicks in if your liability limits on other policies are reached. For example, say you are at fault in an accident that seriously injures someone, and they rack up $1 million in medical costs, but your auto policy has a $500,000 limit. Your umbrella coverage would then kick in and cover the additional $500,000 not covered by your auto policy.
Types of coverage
Umbrella policies are all pretty standard in what they cover, although they can vary somewhat. Commercial umbrella policies can have differences from personal umbrella policies. A type of umbrella policy, called an excess policy, can be more restrictive on when it kicks in and what it covers than a general umbrella policy.
The main benefit of umbrella insurance is that it offers you excess liability coverage on top of your other policies. A secondary benefit is that premiums are relatively inexpensive compared with the amount of coverage the policies provide.