Each month, we pay our monthly insurance premiums, and figure we’re all covered in the event of a loss. Each insurance policy provides coverage up to a certain limit. Your policy should have a clear declarations page that shows those amounts—both property damage and liability. But what happens if something happens that goes above our coverage limits?

If there is a major claim that goes above your policy’s limits, a personal (or business) umbrella would come into play. An umbrella policy is a supplement to your basic policies (home, auto, renters, etc.) that provides excess liability coverage to protect your assets. The umbrella kicks in once the underlying (basic) policy limits have been exhausted. For example:

Billy has a homeowner’s policy with $300,000 in liability coverage. He has some people over, and there is an accident around his swimming pool. Billy is found liable for $750,000 in damages relating to the accident. In this case, Billy’s homeowner’s policy would pay the first $300,000. Then, his umbrella policy would cover the next $450,000.

Typically, umbrella policies have a required minimum underlying limit that you must carry (i.e.: you must have at least $300,000 liability on a homeowners) otherwise you would be responsible for the difference (if you only have $200,000, you would have to pay the additional $100,000 before the umbrella would kick in). These are unique to each company and/or policy, so check with your agent to be sure you’re in good shape with your basic policies.

Another advantage of the umbrella policy is that it may offer additional coverage in areas the underlying coverage might not respond, including some legal defense costs in the event a lawsuit is filed.

Most umbrella policies offer one-million dollars in coverage, and are fairly affordable (starting around $200/year depending on coverages added).

As is the case with all insurance, each policy and each company is unique. Please contact your insurance agent to review your policy, and what coverage you have and what is available. They will be able to work with you to determine the best option for your specific situation.

Each insurance policy is unique. While some generalities can be made, each situation should be reviewed on a case-by-case basis. This is not considered advice on any specific insurance matter. Please contact an agent to discuss any concerns you may have.