According to The Insurance Journal, May 1, 2013,
The Maryland Insurance Administration on Tuesday issued a consumer advisory explaining the basics of umbrella insurance and how consumers may benefit from the coverage. Maryland regulators explained in its advisory that an umbrella insurance policy provides extra liability insurance protection above the policy limits of the policyholder’s homeowners and automobile insurance policy.
Liability coverage pays for personal injury or property damage to a third party due to the negligence of a policyholder or insured person under the terms of the policy. If the amount of the liability claim exceeds the limit of the underlying automobile or homeowners insurance policy, then the umbrella policy will pay up to its policy limits.
Regulators said the umbrella policy typically pays for medical expenses and the lost wages of the injured person as well as the insured’s legal fees. For example, if a driver were to be at fault in an auto accident and caused $250,000 in bodily injury, lost wages and pain and suffering, but only had automobile bodily injury liability coverage limits of $100,000, the at-fault driver could still be held liable for the additional $150,000 — which would have to be paid from the person’s other assets such as savings accounts, investments or property.
However, if a consumer purchased an umbrella policy with limits of $1,000,000, the excess $150,000 would be paid by the umbrella liability insurer. Therefore, an umbrella policy provides an additional level of protection for the consumer’s assets. Consumers can contact their insurance companies or agents for more information on what an umbrella policy covers and how much it will cost.