What Is Umbrella Insurance?

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What Is Umbrella Insurance?

Do you know what umbrella insurance is? Let me share an analogy with you to explain. Have you ever gone to work on a bright, sunny day and by lunchtime, a huge storm blows in? The wind, the rain, people trying to get to their cars with plastic ponchos and newspapers over their heads?

There you are, smugly at your desk knowing that you kept an umbrella in a desk drawer. You planned for the big storm because you figured it was bound to come, only not knowing when.

Well, there is an insurance corollary to that. Consider the plastic ponchos and the newspapers as basic automobile or homeowner’s insurance policies. They may be good enough for the day-to-day risks everybody wants to protect against. The ponchos could be considered the higher insurance limits bought just in case the newspapers weren’t enough, but neither might be nearly enough to protect from a deluge of risk and damage that just might happen. Remember, insurance is bought to protect against the unpredictable.

What Is Umbrella Insurance?

In both the personal insurance and commercial insurance arenas, there exist policies called “umbrella insurance policies” and “excess liability insurance policies”. There are technical distinctions between them. For those of you really interested, a true umbrella insurance policy fills in some of the gaps not ordinarily covered by the underlying, primary insurance policy plus it increases the limits of insurance available to protect against a covered loss. Excess liability insurance policies do not fill in the gaps but they increase liability limits. To make it easier, let’s refer to both of them as umbrellas.

Both kinds of insurance policies sit atop existing ones like automobile insurance policies and homeowners insurance policies. They both increase the policy limits (the amount payable to a claimant if a person or entity insured is negligent in proximately causing a covered loss). “Proximate cause” means that but for the negligent act or omission, the loss or damage would not have occurred. Excess liability insurance policies don’t change the terms of the underlying insurance policy, such as by making a certain kind of loss covered when it was not by the underlying insurance policy. As I mentioned, a true umbrella policy can do that.

Make sure you truly understand the answer to ‘What Is Umbrella Insurance?’ when you’re speaking with your agent or broker. As you recall, The Insurance Problem Solver does not sell insurance![/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]