Umbrella Policy
Definition
An excess liability policy that provides additional coverage above underlying policy limits. Umbrella policies typically require underlying policies to be maintained at specified minimum limits.
Example
An insured has a $1 million general liability policy and a $5 million umbrella policy. A $3 million judgment is rendered. The underlying policy pays $1 million, and the umbrella pays the remaining $2 million.
In Practice
Umbrella policies provide cost-effective excess liability protection. They typically have high limits ($1 million to $10 million or more) and cover multiple underlying policies. Umbrellas may provide broader coverage than underlying policies in some cases. They're essential for individuals and businesses with significant liability exposure.