When you have personal insurance (e.g., auto insurance, homeowners insurance, renters insurance), an umbrella plan may provide additional coverage on top of the liability insurance within these policies.
Suppose that a neighbor falls on your front walk and sues you for $750,000 in medical bills, lost wages and other costs. To cover the costs, you may be able to file for assistance against your homeowners liability insurance. But suppose your homeowners policy will pay only up to $500,000 for the claim—which is your policy limit. That’s a $250,000 gap between what your standard plan will pay and what you may owe your neighbor.
At this time, umbrella coverage may be able to step in. An umbrella policy may be able to help you cover the additional $250,000 that exceeds your standard policy’s limit. Your standard coverage will still pay the initial $500,000, and you can file on your umbrella policy for the remaining $250,000.