Umbrella insurance in plain terms

Home and auto policies carry liability coverage, each with its own limit. Liability coverage pays for injury or property damage to someone else that you or someone on the policy caused. Those policies pay judgments against you, and the defense costs that go with them, up to their limits. An umbrella policy adds extra liability protection above them.

How it works with your other policies

An umbrella kicks in once a claim reaches the limit of the liability coverage underneath it, on an auto, homeowners, renters or condo policy, and then pays up to its own limit. Because it pays only after that coverage is used up, most insurers ask for about $250,000 of auto liability and $300,000 of homeowners liability before they'll sell one.

Take a driver at fault in a crash that leads to a $400,000 judgment, with $250,000 of liability on the auto policy. The auto policy pays $250,000. The umbrella pays the remaining $150,000, up to its own limit.

What it pays for

An umbrella covers situations you're held responsible for, including bodily injury, property damage and personal injury. It pays liability and legal defense costs past what the primary policy pays. It can also cover some claims the primary policy doesn't, such as libel and slander.

It won't pay for damage to your own home or car. If your auto policy doesn't cover hail damage to the car, the umbrella doesn't either. Punitive damages, such as for drunk driving, are excluded. The policy itself lists what it includes and excludes.

An annotated example

What to do next

Find the declarations pages for your auto policy and your homeowners or renters policy. Write down the liability limit on each, in dollars. Keep the figures together with the policies in your records, with the renewal date of each, and read them again when a policy renews.