First, let’s talk about what an Umbrella Liability Policy is and what it does. Simply put, an Umbrella Policy provides an additional limit of liability coverage above and beyond the liability limit on your underlying policies. Underlying policies could include a Homeowner’s/Renter’s Policy or Personal Auto policy, or, in the case of a Commercial Umbrella Policy, it may include Commercial General Liability, Cyber Liability, Liquor Liability, Business Auto etc.
A Homeowner’s or Personal Auto Policy with $500,000 of liability coverage per occurrence can be increased to $1.5M by simply purchasing an inexpensive $1M Personal Umbrella Liability Policy, often for as little as $100-$200. Most companies will offer umbrella limits in $1M increments and many standard insurance markets will offer coverage up to $5M, or more.
In other words, if you have an auto policy with a $500,000 liability limit and you cause an accident in which the other driver incurs $750,000 in bodily injury, your Auto Policy limit would be insufficient, as the injured party has incurred medical bills exceeding the amount of insurance you carried. The other driver, or their family, may still come back and sue you for the difference and an umbrella liability policy can provide additional coverage when the underlying policy limits are exhausted.