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What is “Umbrella Insurance” and What Does it Cover?

By August 26, 2024No Comments

Umbrella liability insurance serves as an excellent safety net for businesses. If you’re unfamiliar with property and casualty insurance, you may have come across the term “Umbrella insurance.” Below, we’ve compiled a basic Q&A to help you better understand this type of insurance coverage:

Q: What is Umbrella insurance?

Umbrella insurance is a broad term for liability policies that act as a backup when your primary liability policies fall short. These policies are designed to step in after catastrophic events that surpass the coverage limits of your primary policies. Think of Umbrella insurance as a safety net that fills in the gaps, offering extra protection against large claims that could severely impact your financial stability.

Q: Are Umbrella insurance policies available to businesses, individuals, or both?

Both! Umbrella insurance is available for both individuals and businesses. For individuals, these policies can extend coverage beyond primary policies like homeowner, auto, and watercraft insurance, covering you and your household. On the commercial side, Umbrella insurance supplements general liability, commercial auto, employer’s liability, and other primary policies.

Q: Are Umbrella policies available for all types of insurance, including cyber, life, health, and property coverage?

Not exactly. Umbrella insurance specifically provides an extra layer of liability coverage. Therefore, you won’t find Umbrella policies for life, health, cyber insurance or Directors & Officers coverage. Typically, these policies can be increased to meet the limit of liability needed.

Q: How expensive are premiums for Umbrella insurance policies?

While costs vary depending on the specifics of each case, Umbrella insurance policies are generally more affordable than equivalent primary policies. This is because Umbrella policies only activate when the limits of primary policies are exceeded or a loss surpasses those limits.

Q: What are some examples of how Umbrella insurance works for businesses?

Commercial Umbrella insurance is designed to enhance primary commercial liability coverage when those policies can’t fully cover catastrophic losses.

For example, if an insured truck causes a multi-car accident resulting in severe injuries, and the total losses amount to $4 million, the primary policy might cover $1 million, while the Umbrella policy would cover the remaining $3 million. Another example could involve a food product manufacturer whose contaminated product causes multiple injuries. While the primary and Umbrella liability policies might not cover the product recall, they would cover bodily injuries, potentially leading to multi-million dollar settlements.

Q: What is Not Usually Covered by Umbrella Policies?

Umbrella policies typically do not cover Professional Liability. In these cases, policyholders often purchase a primary Professional Liability policy along with a separate Excess Policy. The same goes for Directors & Officers Liability and Cyber Liability insurance.

It’s important to remember that the information and examples provided here are generalizations meant to familiarize you with Umbrella insurance policies. The specific coverage offered will vary by insurer and policy terms, so be sure to conduct thorough research before purchasing any policy.

Whether you’re shopping for commercial or individual coverage, choosing the right Umbrella policy is crucial in case the worst happens. Conservation United’s Property and Casualty practice can help you navigate the specific requirements in your state and recommend the coverage level that best suits your needs. Connect with our team today to ensure both your employees and business are well-protected.