Personal Umbrella Insurance

A Personal Umbrella insurance policy can provide more extensive Liability coverage than a personal lines policy. A Personal Umbrella policy is simply a Liability extension to one's homeowners or auto policy. Some insureds need more extensive Liability coverage to protect assets.

The Personal Umbrella has two important purposes:

• Provides additional Liability insurance over and above the basic coverage provided by underlying Liability insurance.
• Cover some losses that are excluded by the underlying Liability insurance.

Coverage limits for a Personal Umbrella policy range from $1 million to $5 million.

Excess Liability Coverage

Picture a Personal Umbrella policy just as the name implies. The umbrella covers and extends your homeowners and auto policy Liability limits.

Lets assume that you purchase a $1 million Personal Umbrella policy. For a loss payable under the Homeowners policy, you would have an additional $1 million of coverage after the $100,000 limit under the Homeowners contract has been exhausted. On a $300,000 loss, the Homeowners contract would pay $100,000 and the Umbrella would pay $200,000. For an equal loss under the Auto policy, this same Personal Umbrella policy would pay up to an additional $1 million, but only after the $100,000 limit of the underlying Auto policy was used up.

Because of the pivotal role played by the underlying policies, the insured must identify any underlying insurance to the insurer before an Umbrella policy is issued. If the insured allows an underlying policy to lapse or be reduced in coverage, the insured would be responsible for paying damages up to the underlying policy's limit before the Umbrella policy would take over.

Suppose an insured has a Homeowners policy with $200,000 in Liability coverage and a $1 million Umbrella policy. If the insured has a $100,000 liability loss payable under the Homeowners policy, the Homeowners policy would pay $100,000 and the Umbrella would pay nothing because the loss is fully covered by the underlying Homeowners policy.

If the same insured has a $300,000 liability loss that would have been paid under the Homeowners policy, except the insured allowed the Homeowners policy to lapse, the Umbrella would pay $100,000. If the insured allows an underlying policy to lapse, he or she must pay damages up to the underlying policy's limit before the Umbrella policy will pay.