When an umbrella policy is broader than underlying insurance, what does it typically pay for losses not covered by the underlying policy?

An umbrella policy is designed to provide additional liability coverage beyond the limits of underlying insurance policies, such as homeowners or auto insurance. When the umbrella policy is broader than the coverage provided by the underlying insurance, it comes into play for losses that are not covered by the underlying policies.

In such cases, the umbrella policy typically pays for losses that fall into this gap, but it does so only after the insured has reached a specified threshold known as the self-insured retention (SIR). This retention amount represents the portion of the loss that the insured must pay out of pocket before the umbrella coverage kicks in. Therefore, the umbrella policy pays for the excess over this self-insured retention amount, making it essential for policyholders to understand this component when utilizing their umbrella coverage.

This concept is important because it highlights that umbrella policies are not a blanket coverage for all losses but rather augment the existing insurance protections by covering amounts above the retention. Understanding this helps policyholders adequately prepare for potential out-of-pocket expenses they may face before their umbrella coverage applies.