Umbrella liability insurance provides excess liability coverage over the insured's primary policies. Umbrella policies provide broader coverage than the underlying policies. An excess liability policy may also be called a following form policy (subject to the same terms of the underlying policies); may be a self-contained policy (subject to its own terms only); or may be a combination of both following form and self-contained policies.
Umbrella policies have three functions:
Provide additional limits beyond the occurrence limits of the insured's primary policies
Replace the primary insurance when the aggregate limits are reduced or exhausted
Provide broader coverage for claims that would not be covered under the insured's primary insurance policies (subject to the policy retention)
In case of an accident or claim, your underlying policy's (boat, home, auto, etc.) limits will be exhausted first and then the umbrella will cover the excess costs (including legal fees) up to the limit on your umbrella.
In order to carry an umbrella, companies require a certain amount of coverage on any underlying policies. Generally, this may require a liability limit of $300,000 for homeowners and/or boat and $500,000/$500,000 for auto or motorcycle policies.
Limits of Insurance - Occurrence limits are on all umbrella liability policies while others have one or more aggregate limits for the losses. Each umbrella policy is unique pertaining to your needs.
Indemnity - when the indemnity clause is put into play, the insurer will compensate the insured for any sum of money that is required to be paid by law or under contract during a claim.
Self-Insured Retention - this is the amount the insured is required to pay before the coverage on the umbrella policy can be applied. This only applies to an excluded loss under the primary policy but is covered under the umbrella.