It might sometimes seem like there's always one more type of insurance to buy. Health insurance protects you against medical problems, auto insurance protects your car, renters insurance protects your stuff, and life insurance protects your loved ones. Some of these insurance policies also protect you against liability. You can also buy an umbrella policy, also referred to as excess liability coverage, to give you even more peace of mind. Umbrellas vary in the coverage they offer you, both in terms of how much and in what they cover. More generous umbrellas are sometimes referred to as drop-down policies.
Auto insurance and property insurance, like a renters or homeowners policy, usually contains liability insurance. This insurance pays when you or your property hurts someone else or someone else's property. When you get into an accident and are ruled at fault, you're responsible to make the person you hit whole. The same thing happens if someone slips on a wet floor in your bathroom or gets food poisoning from your cooking. Liability insurance covers that person's costs, up to the limit. If you have a $100,000 liability cap on your auto insurance policy, and the person has $90,000 in car-repair costs, medical costs, lost work and pain and suffering, you'd be covered. If their costs are $175,000, though, you'd be responsible for the additional $75,000 above your insurance limit.
Umbrella policies are special types of liability insurance policies that go over your regular liability policy. If you have a $100,000 liability policy on your car and you get sued for $175,000 and you have an umbrella, your car insurer covers the first $100,000 and your umbrella policy covers the next $75,000. Typically, umbrella policies are relatively inexpensive since they don't come into play to pay a claim until your other policy gets exhausted. While it might be relatively likely that someone would slip and fall at your house, get a sprained ankle and run up $10,000 in medical bills, it's less likely that they'd run up $50,000 in expenses, and even less likely that they'd hit $100,000.
Umbrellas require you to carry a minimum amount of insurance before you can get coverage. For instance, you may have to have an auto liability policy paying $100,000 per person or $300,000 per occurrence, before your umbrella coverage would come into play. If you have a $1 million umbrella, you'd end up with either $1.1 or $1.3 million of protection, depending on whether an accident involved one or multiple people. Your umbrella generally spans your car, your home or apartment and other motorized vehicles all at once.
Some umbrellas add a drop-down feature. These policies don't just pay when you run out of insurance. They also protect you for incidents that occur when your regular insurance doesn't cover you at all. For instance, some umbrella policies protect you when you're driving outside of the United States, even when your regular car insurance doesn't apply. Others add personal liability coverage that may protect you if you hire a handyman and something happens to him at your house. If you don't own a car or have automobile insurance and a friend gives you a ride, you could technically be liable if he gets in an accident -- since he's driving for your benefit -- and a drop-down umbrella policy may cover you under a "vicarious automobile liability" provision. Policies that don't have a drop-down provision and just add on to claims that are paid by your other insurance are called follow-form policies. They're typically less expensive, but provide less coverage.
- Kingsgate Insurance: Personal Umbrella
- IRMI: Plugging Liability Insurance Gaps with the Personal Umbrella
- Travelers: Umbrella Coverage Basics
- Geico. "Required Minimum Limits for Umbrella Insurance." Accessed Sept. 3, 2020.
- Insurance Information Institute. "Should I Purchase an Umbrella Liability Policy?" Accessed Sept. 3, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.