What is an Umbrella Policy?
If you have homeowners insurance and auto insurance from the same insurance companies and have the highest liability that the insurance company provides on both policies then you are eligible to purchase an umbrella policy. Basically an umbrella policy is an insurance policy that covers claims in excess of the coverage under your homeowner’s or automobile coverage.
Once you’ve reached the limits on your homeowners policy then an umbrella policy will take effect. The deductible of an umbrella policy is the limit on your homeowner’s insurance, which allows for the additional coverage to kick in when your basic policy has paid its limit on your claim. For example, if your homeowner’s insurance policy is for $200,000 then your umbrella coverage deductible is $200,000; leaving uninterrupted coverage from the time you pay your initial deductible until the claim is paid.
Umbrella insurance is sold as a separate policy and is generally inexpensive to purchase. The Insurance Information Institute estimates that $1 million of excess-liability coverage costs between $150 and $300. Each additional $1 million of coverage is less than $100. The reason that it is so inexpensive is because umbrella policies aren’t used that often. And the larger your basic liability limit, the less excess-liability coverage you need and the lower your premium for excess coverage.