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13.4 Personal Umbrella Liability Policies

Learning Objectives

In this section we elaborate on the use of umbrella liability policies as an extra layer of liability protection. Umbrella liability policies protect against catastrophic losses by providing high limits over underlying coverage. There are no standard umbrella policies as there are in auto and home insurance. All, however, have the following characteristics in common:

  • They are excess over a basic coverage
  • They are broader than most liability policies
  • They require specified amounts and kinds of underlying coverage
  • They have exclusions

Excess and Broad

Unlike other liability policies, umbrella policies do not provide first-dollar coverage. They pay only after the limits of underlying coverage, such as your auto or homeowners policy, have been exhausted. Furthermore, they cover some exposures not covered by underlying coverage. A typical umbrella policy covers personal injury liability, for example, whereas auto and homeowners policies do not. When there is no underlying coverage for a covered exposure, however, a deductible is applied. Some personal umbrella liability policies have deductibles (also called the retained limit) as small as $250, but deductibles of $5,000 or $10,000 are not uncommon.

Minimum Underlying Coverage

Buyers of umbrella coverage are required to have specified minimum amounts of underlying coverage. If you buy a personal umbrella policy, for example, you may be required to have at least $100,000/$300,000/$50,000Automobile limits are explained in Chapter 14 "Multirisk Management Contracts: Auto". These values represent $100,000 coverage per person for bodily injury liability and $300,000 total for all bodily injury liability per accident. Property damage liability coverage is $50,000 per accident. (or a single limit of $300,000) auto liability coverage and $300,000 personal liability coverage (Section II in your homeowners policy). If you have other specified exposures, such as aircraft or boats excluded by your homeowners policy, the insurer will require underlying coverage of specified minimum limits. Clearly, an umbrella liability policy is not a substitute for adequate basic coverage with reasonable limits.


Umbrella policies are broad, but they are not without limitations. Typically, they exclude the following:

  • Obligations under workers’ compensation, unemployment compensation, disability benefits, or similar laws
  • Owned or rented aircraft, watercraft excluded by the homeowners policy, business pursuits, and professional services, unless there is underlying coverage
  • Property damage to any property in the care, custody, or control of the insured, or owned by the insured
  • Any act committed by or at the direction of the insured with intent to cause personal injury or property damage
  • Personal injury or property damage for which the insured is covered under a nuclear energy liability policy

Key Takeaways

In this section you studied the following features of personal umbrella liability policies:

  • Umbrella liability policies protect against catastrophic losses by providing high limits over underlying coverage.
  • Umbrella policies are excess and broad in coverage provided.
  • Buyers must have specified minimum amounts of underlying coverage to be eligible.
  • Several exclusions exist in umbrella policies.

Discussion Questions

  1. Under what conditions should a homeowner consider the purchase of a personal umbrella policy?
  2. Are there any common features among the exclusions in umbrella liability policies?
  3. Why might the deductibles for umbrella policies be so high?