Umbrella or Excess Insurance Policies-What Are They and How Do They Work

Donovan & Morello, LLP April 15, 2024

What Is an Umbrella/excess Policy?

Protecting your family and assets is a top priority, which is why people have insurance. Personal umbrella insurance is a type of insurance designed to add extra liability coverage over and above another insurance policy, such as auto or homeowners insurance.

Umbrella/Excess insurance can help prevent you from paying out of pocket for another person's medical bills or damages for pain and suffering if you are responsible for their injuries. For example, if a friend is visiting you and is injured in a fall down at your home or if you are in a car collision that is your fault and causes injuries to another person, an umbrella insurance policy can help cover your resulting expenses in situations like this up to your policy's limit.

Umbrella insurance also typically extends to other members of your household, such as your spouse, children, and other relatives who live in your home.

How Does an Umbrella/Excess Policy Work?

Here's an example of how a personal umbrella policy works: If you're at fault in a car accident that injures another driver, your regular auto insurance may cover the other driver up to the limit you selected, say $300,000. But, what happens if that limit is not enough to cover the other driver's resulting injuries, pain and suffering and medical bills?

If the other driver's injuries are severe, you may be held personally responsible for damages beyond the $300,000 your car insurance policy covers. For any amounts over that, your monetary assets ( such as bank accounts or real estate you own) could be at stake.

Your auto policy's liability coverage may pay for up to $300,000, but where would you come up with the remaining monies over and above that amount? A personal umbrella policy can help cover the additional costs when your standard insurance policy isn't enough. An umbrella policy could provide the additional coverage you need so that you don't get stuck trying to pay the remaining balance yourself. This extra policy could help protect your bank accounts, home, and other personal property.

In most cases, personal umbrella policies are available in million-dollar increments, from $1 million to $5 million. While an umbrella policy is not required, it may offer increased protection in the unfortunate event of a serious accident.