Umbrella insurance refers to liability insurance policy that protects the assets and future income of the policyholder above and beyond the standard limits on their primary policies
It is distinguished from excess insurance in that excess coverage goes into effect only when all underlying policies are totally exhausted, while umbrella is able to "drop down" to fill coverage gaps in underlying policies. Therefore, an umbrella policy can become the primary policy "on the risk" in certain situations. The term "umbrella" refers to how the policy shields the insured's assets more broadly than primary coverage.
Typically, an umbrella policy is pure liability coverage over and above the coverage afforded by the regular policy, and is sold in increments of one million dollars. The term "umbrella" is used because it covers liability claims from all policies underneath it, such asauto insurance and homeowners insurance policies. For example, if the insured carries an auto insurance policy with liability limits of $500,000 and a homeowners insurance policy with a limit of $300,000, then with a million dollar umbrella, the insured's limits become in effect, $1,500,000 on an auto liability claim and $1,300,000 on a homeowners liability claim.
Umbrella insurance provides broad insurance beyond traditional home and auto. It provides additional liability coverage above the limits of homeowner's, auto, and boat insurance policies. It can also provide coverage for claims that may be excluded by the primary policies. These may include, but are not limited to:
- False arrest
- Libel
- Slander
- Invasion of privacy
The premium for an umbrella insurance policy may be less expensive if the policy is purchased from the same insurer that provided the original auto, home or watercraft insurance. Depending on the provider, the policyholder who wants to add umbrella insurance policy is required to have a base insurance coverage of $150,000 to $250,000 for auto insurance and $250,000 to $300,000 for homeowners insurance.
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