I regularly get asked by clients in the Miami area to explain Umbrella Insurance. Frequently, consumers confuse it with Blanket Property, or they think that it is a Package Policy. It is neither, and below is a brief explanation.
Umbrella Insurance is a Liability type policy. In fact, it is an Excess policy. That means it extends the underlying limit of insurance by the face amount of the Umbrella Policy. For example, if someone has a Home with $300,000 of Liability coverage on their Homeowners coverage and they purchase a $1,000,000 Umbrella Liability Policy. They now have a total of $1,300,000 of Liability Coverage.
It is referred to as an Umbrella, because, like an umbrella, that opens up on top; this excess policy can extend coverage over multiple underlying policies. So, in the example above, the $1,000,000 Umbrella can extend over the Home we discussed, as well as the Auto/Boat/Plane (if you have one).
There are tremendous benefits to buying an Umbrella Policy because one can buy large limits of Liability at relatively inexpensive pricing. However, the carrier’s intent is to only offer excess coverage.
Therefore, all Umbrella policies require specific underlying policies to have specific minimum limits in order to qualify. The point at which the underlying is maxed out and the Umbrella begins is referred to as the attachment point. For Homeowners, it is typically $300,000. For Auto it is typically $250/$500/$100.
In most cases, the greater the underlying limit, the cheaper the Umbrella will cost — as the attachment point is a greater dollar amount and there is less risk for the Umbrella Carrier.