Umbrella Insurance Policy

A rain coat is nice. It will keep you mostly dry. However, water will dribble down the hood and onto your nose, and will run down the sleeves and soak your hands. Better to have an umbrella. It creates a bubble of dryness all around.

That’s how an umbrella insurance policy gets its name. The term applies to extra liability coverage you can buy from an insurance company. It's added onto your normal insurance, providing an extra layer of protection.

You have a $500,000 policy on your business. Someone slips and falls on the sidewalk outside your headquarters and sues you for $3.5 million. If you lose, the main insurance only covers $500,000. However, if you have a $4 million umbrella policy, you're covered for the full amount if the verdict goes against you.