Glossary
Umbrella policy, defined
A separate liability contract that pays after the liability limit on an auto, home, boat or similar contract is used up. It adds a large additional limit, and it also covers some claims the underlying policies do not, such as certain personal injury claims.
In practice
Carriers require the underlying policies to carry stated minimum limits before they will write it, so buying one often means raising the auto limits first. It is priced in round increments of coverage and is relatively inexpensive for what it adds, because it pays only on the rare, large loss. It does not add coverage for your own car or house; it only extends what you owe others.
A worked example
Suppose you cause a crash with $600,000 in injuries and your auto policy's per-accident limit is $300,000. The auto policy pays its limit; a $1,000,000 umbrella pays the remaining $300,000. Without it, the $300,000 is owed by you. Hypothetical figures.
Applies to: Umbrella InsuranceAuto Insurance