Most business owners we meet have reviewed their company's liability limits recently. Far fewer have looked at their own. The auto and home policies were set up years ago, the limits have not changed, and in the meantime the house, the savings and the value of the business have all grown. A serious car accident or an injury at your home can produce a claim well above those limits, and a judgment can reach personal assets and future income. A personal umbrella policy is the standard way to close that gap.
How a personal umbrella works
An umbrella is a separate liability policy that sits above your auto, homeowners and similar policies. When a covered claim exhausts the liability limit on the underlying policy, the umbrella pays the rest, up to its own limit. Umbrellas are usually sold in $1 million increments.
It does two other useful things. It can cover certain claims that auto and home policies often do not, such as libel and slander. And it pays for legal defense on covered claims, which matters even when the claim has no merit.
| Layer | What it does |
|---|---|
| Auto and home liability | Pays first, up to the limit on each policy |
| Personal umbrella | Pays covered amounts above those limits, and some claims the underlying policies leave out |
| You | Responsible for anything above the umbrella limit, or outside the coverage |
Underlying limits come first
An umbrella carrier requires you to carry minimum liability limits on the policies beneath it. According to the Insurance Information Institute, most insurers want about $250,000 of liability on the auto policy and $300,000 on the homeowners policy before they will write a $1 million umbrella. Each carrier sets its own requirements, and they apply to every vehicle, home, boat and rental property you want the umbrella to cover.
Watch for a gap between the layers. If an underlying policy is written below the limit the umbrella requires, you may have to pay the difference yourself before the umbrella responds. This happens most often when one policy is changed or moved to another carrier and no one checks it against the umbrella.
Where business owners get caught
A personal umbrella is written for personal liability. It generally excludes liability arising from your business. For an owner, the line between the two is not always obvious, and these are the places we most often find gaps:
Vehicles used for work
A truck titled in your name but used in the business, or a company vehicle you drive personally, can fall between the personal and commercial programs. Each vehicle needs to be scheduled under the right one.
Rental property
Many personal umbrellas can extend over a small number of rentals you own personally. Property held in an LLC is usually a business exposure and needs commercial coverage.
Board service
Some umbrellas cover unpaid service on a nonprofit board for bodily injury and property damage claims. They do not replace directors and officers coverage for decisions the board makes.
Household employees
Nannies, caregivers and regular household staff create employer exposures that a standard umbrella may not address.
Young drivers
A teenage or college-age driver in the household is one of the most common sources of a claim that exceeds auto limits.
Boats and recreational vehicles
Watercraft above a certain length or horsepower, and some recreational vehicles, must be specifically accepted by the umbrella carrier.
Other common exclusions include intentional acts, liability you take on under a contract, and professional services. An umbrella also does not cover damage to your own property or your own injuries.
Personal umbrella or commercial umbrella?
They are different policies that protect different things, and many owners need both.
| Personal umbrella | Commercial umbrella | |
|---|---|---|
| Who it protects | You and household members | The business and its insureds |
| Sits above | Personal auto, home, watercraft | General liability, commercial auto, employers liability |
| Typical claim | Serious auto accident, injury at your home | Jobsite injury, fleet accident, product claim |
| Business activities | Generally excluded | Covered, per the underlying policies |
The two programs should be reviewed together, by the same person, so that every vehicle, property and activity lands under one of them. Read more about commercial umbrella insurance.
How much is enough?
There is no formula, but these are the questions we work through with clients:
- What could a judgment reach? Add up home equity, savings, investments and the value of your ownership in the business. Future income counts too.
- How much exposure do you have? Miles driven, young drivers, a pool, a boat, rental units, frequent guests and a public profile all raise the odds of a large claim.
- What do your underlying policies allow? Raising auto and home liability limits is often the first step, and it is required for the umbrella anyway.
- Do you need coverage for your own injuries? Some carriers offer excess uninsured and underinsured motorist coverage on the umbrella, which protects you when the driver who hits you has too little insurance. It is optional and worth asking about.
Owners with larger or more complex assets often move to a private client program, where higher umbrella limits and broader terms are available from carriers that specialize in those households.
When to call a broker
Call us when you buy a home, boat or rental property, when a new driver joins the household, when you join a board, or when you change how vehicles are titled between you and the company. We place both personal and commercial programs, so we can check that the two fit together without a gap. Whether a given claim is covered depends on the policy's terms, conditions and exclusions, and we will walk you through the wording before you bind. Learn more on our personal umbrella insurance page.