What Is Umbrella Insurance?
An umbrella policy supplements the liability coverage offered by your homeowners insurance and personal auto insurance. If a claim against you exceeds your available liability coverage, an umbrella policy can help make up the difference.
Basically, an umbrella policy acts like an extra layer of protection. It lays on top of your personal liability coverage and extends its limits. This is why you can’t buy an umbrella policy unless you have a home insurance or auto policy first.
You also must have a minimum amount of primary liability coverage before you can purchase an umbrella policy. For us, that typically means $300,000 in personal liability coverage and $500,000 in per accident auto liability coverage.
How Does Umbrella Coverage Work?
The liability portion of homeowner’s insurance and auto insurance covers damage you may be responsible for, like a visitor's injury that happens on your property or car accidents involving you. So say that visitor took such a spill on your front porch that their medical bills far surpass the $300,000 you have in liability protection. They want you to pay for the full $350,000 they've racked up in medical bills and missed work.
This is where umbrella insurance can help out. Instead of paying the remaining $50,000 out of pocket after your insurance covers $300,000 of the claim, you can draw on your umbrella policy to pay it.
Bonus: It's usually cheaper to purchase an umbrella policy than to buy significantly more personal liability coverage.