Umbrella Insurance 101

What is Umbrella Insurance?

An Umbrella insurance policy is designed to protect you from a liability claim above and beyond what your other insurance policies cover. It is sometimes referred to as "excess liability" coverage or "Personal Liability Umbrella Policy" (PLUP).

When you purchase a Home, Auto or watercraft insurance policy, each policy includes a certain dollar amount for liability insurance coverage. If you have a loss for a dollar amount that exceeds the liability limits in your other insurance policies, your Umbrella policy would kick in to cover the difference. Without Umbrella insurance, you may be required to pay out of pocket for any costs that exceed your current liability limits.

Since Umbrella insurance does not go into effect until the other underlying coverage is exhausted, there are certain limits that must first be met before you can purchase a policy. Depending on the provider, if you want to purchase a $1,000,000 Umbrella insurance policy, you must first have $250,000 liability on your Auto insurance policy and $300,000 liability on your Home insurance policy with most companies. Umbrella insurance policies are sold in increments of $1 million the majority of the time. Some companies may require a higher level of underlying coverage if characteristics are riskier. For example, newly licensed drivers tend to get into more accidents than individuals that have been driving for a long time.

What does an Umbrella Insurance Policy cover?

Bodily Injury: If you're liable for an accident that injures other drivers, their passengers or any pedestrians - and you've exhausted the limits on your other insurance policies - your Umbrella policy would cover the remaining liability expenses up to the limits that you purchased.

Property Damage: If you're liable for an accident that damages another person's vehicle and/or property, your Umbrella policy would cover the remaining balance of money needed to repair or replace the damaged property up to the limits that you purchased

What's not covered under an Umbrella Insurance Policy?
  • Injuries to yourself or damage to personal belongings;
  • Intentional or criminal acts;
  • Your personal business;
  • Property damage or injuries that result from an occurrence that is excluded on your policy.
What terms do I need to understand?

Umbrella Liability Limit this is the amount of excess liability coverage your Umbrella policy provides. Your umbrella coverage pays out only if your underlying policy provides liability coverage and the limits of that policy have been exhausted. You are also required to satisfy the Self-Insured Retention provision of your policy. For more details see below.

Self-Insured Retention (SIR) - this is the dollar amount you must pay out-of-pocket toward the defense and/or indemnity costs associated with a claim before your umbrella policy coverage will apply. Once the SIR is reached, the insurance company will make any additional payments for defense and indemnity covered by the Umbrella policy on your behalf. The SIR does not reduce the coverage limit of your policy.

How much coverage do I need?

Like all insurance, this is a personal decision based on your individual needs. Most Umbrella insurance policies start at $1 million as a supplemental policy (not available as a stand-alone policy). You should consider having enough insurance to cover your net worth. Basically, the more assets you have, the more insurance you will need. As a rule of thumb, you should consider these three things when deciding about how much Umbrella insurance to purchase:

  • Your risk factors - Do you own a dog or have a swimming pool? Do you spend a lot of time in your car due to your work commute? Do you have a teen driver in your household? If you answered "yes" to any of these questions, you may have an above-average chance of being sued. An Umbrella insurance policy can provide extra protection that you may need.
  • The value of your assets - Add together the value of your home, your vehicle(s), your savings and investments. You should set your coverage amount based on the total value of all of your assets.
  • The potential of future income - If someone sues you and the judgment exceeds your liability coverage, your future earnings may also be at risk of being garnished to pay off the judgment. To protect your future earnings, multiply your annual income by 5, and add that amount to your asset total.

If you have assets that you want to protect, Umbrella insurance is well worth the investment. As lawsuits become more and more prevalent, failing to protect yourself with this relatively inexpensive insurance is a risk you may not want to encounter.

How to purchase an Umbrella policy from Stillwater:

  • Call us at (855) 712-4092. Our licensed reps are available Monday through Friday from 8am-9pm ET, and 8am-3pm ET on Saturday.
  • Visit a local independent agent. Click here to find an agent near you.