– Umbrella Insurance –
An umbrella liability policy is a hybrid of excess liability and additional coverage. Umbrella liability policies provide coverage and limits over and above the underlying liability policies. The typical underlying policies are automobile liability, general liability and employer’s liability. The difference with an umbrella liability policy is that it can provide coverage for claims that are not covered by the primary policies. Such claims are subject to a type of deductible called a self-insured retention.
Deductible vs. Self-Insured Retention
An excess liability policy not only pays the amount a business is legally liable to pay as a result of the claim, but the policy also pays for the legal costs incurred in defending the claim. With a strict excess liability policy, the deductible is usually equal to the liability limits on the primary policy. In contrast, since the umbrella policy provides coverage above and beyond what the underlying policies provide, the umbrella has a self-insured retention. This means the insured must pay out of pocket the defense and claim costs until the self-insured retention is reached. A typical self-insured retention is $10,000. Once the self-insured retention deductible is satisfied, the insurance company takes over and picks up the rest of the costs until the policy limits are reached.