What Is an Umbrella Policy? | NJM

Skip to Main Content
Ask NJM

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. 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 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.

Infographic explaining umbrella insurance. Liability coverage = $1 million, your deductible = $500,000. Auto insurance policy Liability Coverage is $500,0000. Motorcycle and Recreational Vehicle Policy Liability coverage is $500,000. Homeowners Insurance Policy Liability coverage is $500,000. Boat and Personal Watercraft Policy Liability coverage is $500,000

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

The information and descriptions on this site are general in nature. The coverage afforded for a particular loss depends on the specific facts and the terms, exclusions, and limits of the actual policy. Nothing on this site alters the terms or conditions of any policy, as the policy controls coverage. Coverage options, limits, discounts, deductibles, and other features are subject to underwriting criteria, state availability, and effective dates. Coverage provided and underwritten by NJM Insurance Company and its subsidiaries, 301 Sullivan Way, W. Trenton, NJ 08628.