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What Is an Umbrella Policy?

An umbrella policy provides additional liability coverage for auto and homeowners insurance policyholders.

More Protection

Umbrella policies provide coverage for certain claims that homeowners and auto policies don't cover, including:

  • Defamation
  • False arrest
  • Damage to rental property

Higher Limits

Your auto and homeowners insurance policies both limit the total payout for any given claim. You can usually choose liability limits up to $500,000. If you're found liable for an accident, you would be responsible for any damages over that amount.

Umbrella insurance increases your liability limits above those your auto and homeowners policies provide.

Here's how it works:

You cause a car accident.

For example, you cause an accident and the resulting judgment for the injury claim is $600,000, but the liability coverage on your auto policy has a limit of $500,000. An umbrella policy would kick in to pay the remaining $100,000. Without umbrella insurance, you would be personally responsible for that additional $100,000.

Bodily Injury Claim
This is the judgement issued against you.
+$600,000
- Your Liability Limit
Your auto policy would pay this.
-$500,000
= Remaining Expense
An umbrella policy would pay this.
=$100,000

Generally, you must maintain a minimum liability limit on both your auto and homeowners policies to qualify for an umbrella policy. The umbrella insurance deductible varies by insurance company.


Understanding Split Limits

A single limit policy has one liability limit for all injuries or damage sustained in a single incident.

In contrast, if your auto or homeowners insurance policies have a split limit, you might not meet the minimum limits required for full coverage under an umbrella policy.

A split limit policy has a lower limit that applies to each person injured and a larger limit that applies to each accident.

If you have a split limit policy, strongly consider purchasing the highest per-person limits possible. This can help you to meet the umbrella insurance deductible without any out-of-pocket costs.

Umbrella Deductible +$500,000
- Per-Person Liability Limit
Your auto or homeowners policy would pay this.
-$250,000
= Out-of-Pocket Cost =$250,000
Umbrella Deductible +$500,000
- Per-Person Liability Limit
Your auto or homeowners policy would pay this.
-$500,000
= Out-of-Pocket Cost =$0

Learn more about NJM Umbrella Insurance, or explore other insurance topics in Ask NJM.

The content on this page is intended for informational purposes only. It is not an insurance policy, and does not, in any way, replace or modify the definitions and information contained in individual insurance policies. Terms and coverage availability may vary by state, and exclusions and deductibles may apply. Discounts also vary by state and may not be applied to all policy coverages. Coverage for an accident or loss is subject to the terms and conditions of the insurance policy applicable to a particular claim.