Definition of Umbrella Insurance in Business Insurance

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Umbrella Insurance

Umbrella insurance goes beyond the normal coverage of home or auto policies. It’s a comprehensive liability program you can use when a claim is too large for your standard limits. In other words, it picks up where your other insurance policies end.

It also handles claims not covered under narrower policies. For instance, an umbrella insurance policy covers certain types of libel and slander. It can also be used if you’re sued for something like false imprisonment. Umbrella insurance may even offer coverage if you’re arrested for malicious activity such as invasion of privacy or wrongful entry.

Usage Examples

Here are some scenarios where an umbrella policy would be used:

  • You provide baked goods for a school event. After those who eat them get sick due to food poisoning, some of the parents decide to sue you for medical payments and lost wages.

  • You cause a multi-vehicle accident with injuries. Your auto insurance liability coverage won’t cover repairs to every car. On top of this, your personal liability costs exceed your maximum amount.

  • An uninsured handyman injures themself while working in your home. They sue you for an extraordinary amount of money that your home insurance doesn’t cover.

Who Is Covered in an Umbrella Policy?

Umbrella insurance covers not only you but your entire family. If your teenage driver gets into an accident, the policy would handle the payment of the medical bills of the other party. Your spouse would be protected if someone they work with determined the text of an email was slander.

What Umbrella Insurance Helps With

People wonder why they need to purchase umbrella insurance when they have policies for their home, vehicle, and life. Some industry experts believe it’s needed due to our increasingly litigious society. Thus, umbrella insurance places a complete shield around you and your family.

Other factors to consider are if your occupation or lifestyle merits an umbrella policy. Those in high-risk professions might want to look into this type of insurance, especially if they know it’s one regularly sued.

On a personal level, an umbrella policy is needed if the value of all your assets is greater than your coverage amounts. Then, if the court awards a huge settlement to the other party, you won’t lose the entire value of what you own.


The cost of umbrella insurance is usually reasonable. That’s because you need to have large auto and home policies to even be considered.

Most likely, you already have property insurance with full coverage as it’s one of the qualifiers to complete a home sale.

However, you would need to increase the amounts in your vehicle insurance if it’s an older car that you only thought needed minimal coverage.