What is an umbrella policy for?

An umbrella insurance policy provides additional liability protection over your other policies. It is additional insurance on top of the coverage you already have. The main perk of an umbrella policy is that it is extremely affordable and provides a lot more coverage than a standard home, auto, motorcycle, boat, etc. policy and can be applied to any of the policies under the umbrella.

Below is an example:

Jane Doe has the following policies and liability coverage:

Home $500,000

Auto $500,000 Combined Single Limit

Boat $500,000

Rental House $500,000

She can purchase a $1,000,000 umbrella policy which provides her with an additional $1,000,000 in liability coverage above her $500,000 liability on each of her other policies.

You may be wondering when you would ever need $1,500,000 in liability insurance coverage. Below is an example of an incident that can happen so quickly and can exceed the liability coverage on a home/auto/other personal policy.

Let’s assume Jane Doe has the policy limits above (a $500,000 home policy and a $1,000,000 umbrella). For this example, let’s assume the following:

  • Jane was involved in an incident where her dog ran into the road and caused a motorcyclist to crash and become seriously injured.
  • The cyclist was in the ICU for one month.
  • The medical bills from the injury added up to $900,000.

In this case, Jane’s home insurance liability of $500,000 would be capped out. If Jane has an umbrella, the umbrella would kick in to cover the additional $400,000 that would otherwise need to be paid out of pocket by Jane.

Umbrella policies can truly be the difference between a family who goes bankrupt and one who does not have to pay anything out of pocket in a large liability loss event.  

*One important item to note for business owners is that separate umbrella policies are needed for personal policies and business policies.

*Some umbrella policies offer an additional coverage Uninsured and Underinsured Motorist. Check with your agent to see if this is an option with your carrier.