Umbrella Insurance


Personal umbrella insurance is a type of liability insurance that provides an extra layer of coverage beyond the limits of your primary insurance policies, such as your homeowners, auto, or boat insurance, and can also add additional coverage that is missing from your underlying policies.

Key points about Personal Umbrella Insurance:

  1. Underlying Policies and Minimum Underlying Limits: An umbrella policy "stacks" on top of other liability policies. As such, an umbrella will specify the minimum amount of liability insurance that must be carried by those underlying policies. For example, you may be required to carry $500,000 in liability insurance on your auto and home policy, and failing to do so would effectively create a $500,000 deductible for your umbrella.
  2. Coverage Limits "Stack": Personal umbrella insurance provides coverage limits that start where your underlying policies' limits end, and adds additional insurance "stacked" on top of your other policies. For example, if you carry $500,000 of liability on your auto policy and purchase a $500,000 umbrella, you will have effectively purchased $1,000,000 of auto liability.
  3. "Following-Form" versus "Drop-down" Coverage:

    Some umbrella policies provide additional insurance for a claim if the underlying policy covers the claim; these types of umbrella policies are said to follow the wording on the underlying policy form, or more simply "follow form".

    Some umbrella policies have "drop-down" provisions, allowing them to cover certain types of claims that are not covered by the underlying policy; the umbrella policy is said to "drop-down" and provide insurance as a primary policy. For example, most U.S. auto insurance policies are active only when driving in the U.S., Canada, or Puerto Rico; a trip to France would leave you without liability insurance to drive a rental car. Some umbrella policies will, however, provide auto liability insurance for that trip to France even though the underlying auto policy does not.

Personal umbrella insurance is important for everyone, not only because of seemingly ever greater amount of money awarded in lawsuits, but also for the additional insurance that some umbrellas provide through drop-down provisions. Before purchasing an umbrella insurance policy, it's recommended to review your primary insurance coverage, assess your liability risks, and discuss your needs with an insurance professional to ensure you have adequate protection for your personal circumstances.

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