Umbrella Insurance

What is Umbrella Insurance and How does it work?

Personal or family liability is a potential risk for all of us, regardless of whether or not we have sizeable assets. An umbrella policy is designed to extend the existing liability coverage for your existing auto and homeowners policies. Boat and RV liability would also be extended, if applicable. Much like its name, the umbrella insurance stays above the other liability coverage you have, providing additional coverage if the limits of those policies are exceeded.

This type of policy is designed to protect your assets as well as future earnings if either become at risk due to a covered lawsuit. Personal or family liability can come about in many unexpected ways, creating some level of risk for even the most careful people.

As a requirement, in most cases, you’ll need some minimum liability limits for the other policies which sit below the umbrella policy. This is called underlying coverage. Typically, you’ll need 250,000/500,000 as a minimum for your auto liability coverage and 300,000 for your homeowner’s liability coverage to be eligible for the extended protection of an umbrella. If these limits are exceeded during a claim, that is when the coverage from the umbrella policy comes into play.

In effect, your existing auto and home policies will capture the smaller covered claims while the umbrella policy protects against the larger covered claims. This structure gives much better protection for multiple policies and types of risk, yet still makes the umbrella relatively affordable because the smaller risks are covered by the underlying coverage of the policies under the umbrella insurance.

Some people in the insurance business used to refer to an umbrella policy as a pool policy. This helped clients to understand the need for this type of coverage if you owned a pool, which of course has risks. However, in an increasingly litigious society, risks aren’t as limited as they once were. An auto accident, which seemed like a simple fender-bender, can end in a costly lawsuit. A dog bite resulting from someone frightening the animal can also end in a lawsuit. There are any number of reasons that personal liability can occur, and an umbrella policy is designed to help protect you against those risks.