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
and more.
Higher limits
Your auto and homeowners insurance policies both limit the total payout for any given claim. Umbrella insurance provides coverage above your auto and homeowners policies, up to your chosen limit.
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 judgment 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 a gap in coverage or 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/Gap Cost | =$250,000 |
| Umbrella Deductible | +$1,000,000 |
| - Per-Person Liability Limit Your auto or homeowners policy would pay this. |
-$1,000,000 |
| = Out-of-Pocket/Gap Cost | =$0 |