Umbrella insurance is a policy that covers the excess claim that surpasses the limits of your General Liability insurance policy, and any other policy from which the claim would be paid.
Example: Your General Liability policy covers you up to $10k. A claim is made against your small business to the value of $15k. If you have an Umbrella Policy, then $10k will be paid from the the General Liability policy, and $5k will be paid from your Umbrella Policy.
If your General Liability, Employers Liability, or Commercial Auto limits are exhausted during a claim, you can tap into your Umbrella policy. The limits of the former policies must be completely exhausted before the Umbrella Insurance can be triggered.
Depending on your policy, the Umbrella can cover certain claims that may be excluded with the underlying policies. Be sure to check your insurance companies policy as these exclusions/inclusions can vary.
1. A General Liability (GL) insurance policy can be bought as a stand-alone policy. That's not the case with an Umbrella Policy. You must have at least a GL policy in order to also have an Umbrella policy.
2. A General Liability (GL) insurance policy may be obligatory depending on your industry. However an Umbrella Policy is not obligatory. That said, it is highly recommended to protect your small business where the limits of your GL policy are exceeded.