What umbrella insurance covers

Suppose your auto policy carries a bodily injury limit of $250,000 per person and you cause a crash that ends in a $900,000 judgment. The auto carrier pays $250,000 and the defense to that point. A $1 million umbrella pays the remaining $650,000 and the defense from there. Without the umbrella the balance is collected from savings, from home equity above the state's homestead protection and, in the states we serve, from wages for years. The same stacking applies over the home policy for an injury on your property and over a boat or rental policy that is listed on the umbrella's schedule.

The umbrella lists a required underlying limit for each policy beneath it: auto bodily injury and property damage, home personal liability, watercraft, recreational vehicles and rental properties. If an underlying policy is dropped below that number or lapses, the umbrella still attaches at the required limit, and the gap between what you carry and what the umbrella expected is yours. Some carriers write the umbrella only when the auto and home are with them; others accept outside policies and ask for the declarations pages each year.

Beyond adding a layer, most umbrellas cover claims the underlying policies leave out: personal injury in the legal sense, meaning libel, slander, defamation and false arrest, along with liability from incidents abroad and some claims involving vehicles you rent or borrow. For these the umbrella pays from the first dollar after a self-insured retention, a deductible-like amount that is usually modest. What is covered here varies by carrier more than any other part of the form.

Everything above pays other people. Some carriers offer an endorsement that extends uninsured and underinsured motorist coverage to the umbrella limit, so that when an uninsured driver injures you or a family member badly the umbrella pays your side. It is not offered everywhere and it adds to the premium, but for a household whose exposure runs the other way it is often the more valuable half of the policy.

A personal umbrella excludes business and professional liability, including a side business run from the house, intentional harm, liability you took on in a contract, and any vehicle, boat, aircraft or property that is not listed on the schedule. A rental house or a ski boat left off the schedule is uncovered, which is the most common umbrella claim denial.