Umbrella Insurance – What is it and How Does it Work ?

Things go wrong, mistakes happen – even with the best intentions, or/and precautions in place. Damage to you, your property, or others can not be avoided in life and when they happen, they can be difficult to deal with. The fundamental reason you need insurance include

To protect yourself and your family

To enjoy a reasonable standard of life, your family relies on your financial support, which is why insurance is extremely necessary once you start a family. It means if the unexpected happens, the people who matter most in your life will be shielded from financial hardship.

Reduce tension during tough times

Nobody knows exactly what the future holds. Tragedies such as injury or permanent disability, sickness, and even death can happen unexpectedly– leaving you and your family experiencing immense emotional turmoil and even grief. With insurance in place, you or your family can reduce the financial burden, and you can concentrate on healing and restoring your lives.

For financial security

No matter what your financial situation is today, an unforeseen occurrence may very easily make it crumble. Insurance offers a payout so you and your family will potentially continue to move on when there is an unforeseen event.

Peace of mind

No amount of money can replace your well-being and health – or the role you play in your family. But, at least, you can have peace of mind knowing that if anything happens to you, insurance will assist your family’s financial stability.

There are different types of insurance for different purposes, but there is one that goes beyond the standard forms of insurance which we will consider: Umbrella Insurance.

When you unintentionally cause other people serious injury or property harm, insurance helps you prevent financial ruin. Truth is, insurance may not always be enough. That is where umbrella insurance comes in.

It’s vital to understand just what umbrella insurance coverage is, how it works, and how much it costs before you can decide if you need a personal umbrella policy.


What is Umbrella Insurance and How Does it Work ?

An umbrella insurance package is additional risk insurance coverage that extends beyond the home, auto, or marine insurance limitations of the insured.

It offers an extra protection measure for people at risk of being sued for damages to the properties or injury rendered to someone in an incident. It also defends against fraud, theft, defamation and privacy infringement.

An umbrella insurance policy is of great benefit when the insurance owner is being sued and the insurance amount limit has been reached. The extra security offered by the liability policy is particularly valuable for people who own a number of assets or very expensive assets and are at serious risk of litigation.

Consider the following example to understand how umbrella policy works. If a driver crosses a red light and unintentionally strikes another car, the vehicle could cause substantial damage and several passengers could be injured. For vehicle damages totalling £50,000 and accident compensation eclipsing £500,000, the driver at fault will be found responsible for costs that extend way outside their liability coverage cap. The umbrella insurance scheme can cover the extra risks of liabilities outside the scope that regular insurance protection.

Excess vs Umbrella Insurance

Excess vs Umbrella Insurance

Excess insurance is similar in that it covers when an underlying primary policy is expended, but the vital distinction is that excess policies are usually “follow-form” policies and exactly correspond to the original policy coverage, except that they add to their own excess cap which is then piled over the main policy limit.

Umbrella policies aim to have wider scope for one or more primary policies, in that they typically lack “follow-form” provisions, their interpretations of what is covered can be narrower than the definitions in the primary policies, and they often ignore the exclusions contained in the primary policies that underlie them.

An umbrella insurance policy can also offset all liabilities resulting from the first dollar of loss or damage sustained, which were never covered by the main policies. For those risks left unprotected by primary coverage but protected by the umbrella scheme, the latter is meant to “fall back” to protect them as primary insurance and to fill the gaps in the underlying policy

What does Umbrella Insurance Cover?

If you are held guilty and have to pay penalties, or if you are sued and have to pay for your legal protection, your umbrella policies can come into play – even though the outcome is that you are not found to be liable.

An umbrella policy activates only after the general limitations of your cover has been reached or the claim is excluded from the basic cover of liability. The claim will be taken on behalf of the wronged party against you, the policyholder. Your insurance provider will then pay the cost of the settlement up to the coverage limit. If the settlement amount exceeds the coverage limit, you are liable for paying out of pocket the remaining amount.

Who Needs Umbrella Insurance?

 Umbrella insurance is not needed by everyone. However, it is commonly purchased by people who:

  •       are property owners;
  •         have substantial investment, savings or assets;
  •         are concerned about insurance claims when they travel out of the country;
  •         own items which can lead to accident claims such as pools, trampolines and dogs (check with the insurer to ensure that your pet is covered);
  •         engage in activities that can increase their chances of being sued, such as landlords, coaching children sports, serving on a non-profit board, volunteering;
  •         review goods and businesses periodically; and
  •         participate in activities such as skiing, swimming, fishing, where people may potentially be hurt.

You may make a case that the umbrella insurance is available to just about everyone. Why? Because a big lawsuit may take out not only your present income but your future profits as well, and if you don’t have the funds today to fund a big settlement, you might be trapped for years paying off the debt, massive settlements that can be covered by an umbrella cover once your insurance limit has been reached.

Excess vs Umbrella Insurance

Should I buy Umbrella Insurance?

Not all businesses will benefit from Umbrella Insurance. Know your particular business risks and expectations, and address what types of liabilities you might have with your insurance provider.

In general, if you are worried about the coverage that your primary policies offer, you can benefit from Commercial Umbrella Insurance. Think about some stuff here: 

  •     Is your company open to the public? More guests mean more chances of someone on your property being hurt, which increases the risk of facing costly lawsuits of general liability.
  •         Do your workers use their own cars for work? If they get into a major accident, your company may be sued for damages and your insurance coverage will not be adequate to cope with the lawsuit.
  •         Are your workers at risk of injury at work? Serious work accidents can cause litigation, which would potentially exhaust the insurance coverage of your employer.
  •         Do you work for rich clients? This can allow you to carry higher limits on insurance to minimise possible risk.

When you think your company is vulnerable to these risks, you may want to ask your Commercial Umbrella Insurance provider about this. It is better, after all, to be on the safe side than to risk yourself shouldering high litigation costs.

What are the Benefits of Umbrella Insurance ?

Now that you know a bit about what umbrella insurance is and how it operates, you may find that getting the extra cover is the best match for you.

Here are several other benefits:

  •     Acts as extra compensation – umbrella protection may only kick in after all other liability plans have exhausted compensation. When you are found to be liable for £400,000 in damages due to an incident in your house, but only £300,000 is covered by your homeowners’ insurance, the £100,000 difference would be protected by your comparable policy.
  • Provides cover for your assets – without umbrella insurance, the courts can go after your business assets or your personal assets to cover damages;

·         Inexpensive – personal coverage is usually inexpensive, giving you peace of mind at a price you can afford. Some consider that being prepared financially to cope with an unforeseen event makes up for the extra expense.

Umbrella Insurance

Buying Umbrella Insurance

Insurers usually offer insurance policies in amounts of millions. That means the cheapest policy available offers coverage of up to £1 million, the next-cheapest policy provides coverage of £2 million, and so on.

Companies only offer umbrella insurance if you already have car or property insurance — generally homeowners’ insurance, but probably another policy like rental or condo insurance. Before you can purchase an umbrella policy, you must purchase a minimum amount of liability insurance on such coverages; the minimum amounts differ by product.

For example, the plans may need to cover £100,000 to £300,000 in bodily injury liability coverage and £100,000 in property damage liability coverage to add coverage to your auto insurance. You would need about £300,000 in liability insurance to add umbrella coverage to a homeowners’ policy.


Private umbrella plans usually provide Liability coverage of at least £1 million. They’re usually available in £1 million instalments, up to £5 million. Your agent will help you determine exactly how much coverage you need.

A personal umbrella policy can apply to the entire household of the policyholder, for example a partner or children. Some exclusions can however apply. Be sure to read your policy or contact your agent to find out which members of your household can qualify for cover by the umbrella.

In certain cases, the umbrella policy includes dog bites. When your dog bites your neighbour, you will be responsible for physical harm to that person. When your neighbour wants to seek legal action, umbrella insurance will also protect you. Additionally, depending on the insurance provider offering the homeowners’ policy, if you own particularly dangerous dog breeds, an umbrella policy can be your only real defence.

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