Umbrella Liability Policy

Umbrella policies are designed to cover large, infrequent losses such as the total cost of claims that may result from a collision with a school bus. To decide whether you need an umbrella policy, think of the most extreme situations like a roof caving in under the weight of a once in a 100-year snowstorm, and the total cost of the claims that such an accident would produce if there were many people in the vicinity; then compare the amount with the limits of your current liability policies.

Umbrella liability insurance provides two kinds of coverage:

  • Payments of liabilities in excess of the policy limits for an insured's basic commercial general liability, or employers' liability coverage; and
  • Liability for areas not covered in other liability policies.

An umbrella policy offers you extra liability insurance that pays for a loss when the limits of your underlying policy are reached. So, if you are responsible for someone's injury that required $150,000 of medical treatment and the liability limit in your underlying policy is $100,000, your umbrella policy will pay the additional $50,000. Also, there are some situations, such as libel and slander that a standard policy does not cover. An umbrella liability policy enables people to protect themselves against catastrophic lawsuits in such situations.

Umbrella policies are sold with a variety of limits, commonly $1 million or $5 million. The underlying policies provide the first dollars in a liability claim and the umbrella is available to any remaining amounts until the amount paid by all policies reaches the umbrella limit.

Umbrella liability policy coverage usually protects policyholders wherever they travel. Many such policies will cover legal defense costs even if the charges are proved baseless. Umbrella liability coverage has come to be in high demand among individuals who have substantial assets and who may be especially vulnerable to lawsuits and costly judgments.

Keep in mind that most personal umbrella policies that are added to a homeowner's or personal auto insurance policy will cover liability stemming from business activities and business property only if covered by the basic policies. Always check your policy to see how it defines business and business property, or ask your agent.