Umbrella Policy

An umbrella policy for insurance covers both the assets of the insured party and the future income of parties on the primary policies. For a home and auto insurance umbrella policy of $1 million, the liability limits for both would increase by $1 million. To find the right umbrella policy cost for your situation, shop around for umbrella policy quotes online and compare using our free tool below.

Free Car Insurance Comparison

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

Written By: Rachel BodineReviewed By: Leslie KasperowiczUPDATED: Jun 6, 2022Fact Checked

Umbrella insurance is a kind of liability insurance policy that covers both the assets of the insured party and the future income of parties on the primary policies. It is not the same as excess insurance, which typically only applies when all the policies that it covers have been exhausted, umbrella insurance “drops down” to fill in gaps in coverage as needed against any underlying policy or policies.umbrella policy

Sometimes the umbrella policy is considered to be the primary policy “on the risks” for certain situations. Obviously, the word “umbrella” is referring to the way that the umbrella policy protects the insured parties’ assets in a more broad way than the primary insurance policies beneath it.

How Do Umbrella Policies Work?

So for example; an umbrella policy is only for liability coverage that runs over and above the initial coverage afforded by other policies. Umbrella policies are typically sold in $1 million coverage increments. So if there were to be a $1 million umbrella policy covering both an auto insurance policy and a home owner’s policy it would be added to the liability coverage limits of each policy. So in effect – if the auto insurance policy has a liability insurance limit of $250,000 then the total coverage is $1.25 million (for liability only) and if the home insurance policy has a limit of $500,000 then the total coverage is $1.5 million in that respect too.

Umbrella policies enable policyholders to extend their specific liability coverage over and above that provided by existing policies. They are designed to offer a cost-effective mechanism for increasing liability coverage without simultaneously paying for additional coverage under other types of insured risk on a more broad-based policy.

An umbrella policy can be extended across any range of policies that insure at least in part against the liability of the individual (so, for example, an umbrella policy is not going to add benefits to a health insurance package because individual liability coverage isn’t included in health insurance) such as boats, RV’s, caravans, and other insurance policies.

It’s also worth noting that an umbrella policy may be able to extend coverage in the event of liabilities that are not covered by existing policies too – in this case, the total liability insurance in these events is limited to the value of the umbrella policy and does not include any other policy’s limit. These events may include; libel, slander, invasion of privacy and false arrest.

(To read more about personal umbrella insurance outside of our glossary, please read our more detailed article on the subject.) 

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

Full Bio →

Written by Rachel Bodine
Insurance Feature Writer Rachel Bodine

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

Full Bio →

Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

Free Auto Insurance Comparison

Compare over 200 auto insurance companies at once!

secured lock Secured with SHA-256 Encryption