Umbrella insurance refers to a liability insurance policy that protects the future income and assets of the name insured in addition to his or her primary policies. The term “umbrella” refers to the way the policy guards the insured’s assets more generally than primary coverage.
Typically, an umbrella policy is pure liability coverage over and above the coverage afforded by the standard policy, and is sold in increments of one million dollars. The term “umbrella” is used because it covers liability claims from all policies underneath it, such as auto insurance and homeowners insurance policies. For example, if the insured carries a car insurance policy with liability limits of $500,000 and a homeowners insurance policy with a limit of $300,000, then with a million dollar umbrella, the insured’s limits become in effect, $1,500,000 on an auto liability claim and $1,300,000 on a homeowners liability claim.
Umbrella insurance provides insurance beyond traditional home and automobile. It provides additional liability coverage above the limits of homeowner’s, automobile, and boat insurance policies. It can also provide coverage for claims that may be excluded by the policies.