What is 'Umbrella Insurance Policy'

An umbrella insurance policy is extra liability insurance coverage that goes beyond the limits of the insured's home, auto or watercraft insurance. It provides an additional layer of security to those who are at risk for being sued for damages to other people's property or injuries caused to others in an accident. It also protects against libel, vandalism, slander and invasion of privacy. An umbrella insurance policy is very helpful when the insurance owner is sued and the dollar limit of the original policy has been exhausted. The added coverage provided by liability insurance is most useful to individuals who own a lot of assets or very expensive assets and are at significant risk for being sued.

BREAKING DOWN 'Umbrella Insurance Policy'

The premium for an umbrella insurance policy may be less expensive if the policy is purchased from the same insurer that provided the original auto, home or watercraft insurance. Depending on the provider, the policyholder who wants to add an umbrella insurance policy is required to have a base insurance coverage of $150,000 to $250,000 for auto insurance and $250,000 to $300,000 for homeowners insurance.

Umbrella insurance is often referred to as excess liability insurance. It acts as a fail-safe for your savings and other assets. If a policyholder is sued for damages that exceed the liability limits of car insurance, homeowners insurance or other coverage types, an umbrella policy helps pay what they owe. It may also provide coverage not included in a base insurance policy.

People who regularly purchase umbrella insurance will usually own property, have significant savings or they may own dangerous things that can cause injury (pools, trampolines, dogs, etc.). They might also engage in activities that increase their chances of lawsuits, such as:

  • Being a landlord.
  • Coaching kids’ sports.
  • Serving on the board of a nonprofit.
  • Volunteering.
  • Regularly posting reviews of products and businesses.
  • Participating in sports where you could easily injure others (skiing, surfing, hunting, etc.).

How Umbrella Insurance Works

To understand how umbrella insurance can help, consider the following scenario. If a driver runs a red light and accidentally hits another car, there might be significant damage to the vehicle and several people might be injured. With car repairs totaling $50,000 and the treatment of the injuries eclipsing $500,000, the driver at fault may be liable for expenses that go far beyond the coverage limits of their insurance. An umbrella insurance policy will pick up the additional liability costs beyond the limits of car insurance coverage.

RELATED TERMS
  1. Liability Insurance

    Any type of insurance policy that protects an individual or business ...
  2. Assigned Risk

    A risk that an insurance company is required to provide coverage ...
  3. Classified Insurance

    Insurance coverage provided to a policyholder that is considered ...
  4. Business Insurance

    Business insurance coverage protects businesses from losses due ...
  5. Additional Insured

    Additional insured is a type of status associated with general ...
  6. Insurance Coverage

    Insurance coverage is the amount of risk or liability covered ...
Related Articles
  1. Insurance

    How Umbrella Insurance Works

    At low cost, you can buy significant extra liability coverage in case you're sued due to an accident or other legal issue.
  2. Insurance

    It's Raining Lawsuits: Do You Need An Umbrella Policy?

    This type of insurance protects your assets and future wages against lawsuits. Find out if it might benefit you.
  3. Insurance

    Insurance, Excess Insurance and Reinsurance: What's the Difference? (ALL)

    Understanding the differences might help you avoid being overinsured or underinsured.
  4. Insurance

    Homeowner's Insurance Guide: A Beginner's Overview

    Everything new homeowners need to know about homeowner's insurance to protect their residence.
  5. Insurance

    Bundle Your Insurance For Big Savings

    Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts.
  6. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own, your insurance contract.
  7. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  8. Insurance

    How to Find the Right Car Insurance

    Finding the right car insurance can be difficult. However with these strategies, you can get the most for your money, protect your assets and your health.
  9. Managing Wealth

    How You Can Protect Assets With Umbrella Insurance

    Here's why protecting your assets from litigation via umbrella liability insurance is a good idea.
RELATED FAQS
  1. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  2. What is the usual profit margin for a company in the insurance sector?

    Learn what the average net margin is within the insurance industry and what factors can affect the profitability of an insurance ... Read Answer >>
Hot Definitions
  1. Receivables Turnover Ratio

    Receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting ...
  2. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  3. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  4. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  5. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  6. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
Trading Center