Umbrella insurance is a policy which fits on top of the liability portion of your existing policies. This explains the name and its purpose which is to provide more coverage and higher limits. You can only purchase this policy if you have the other basic liability policies such as homeowners, renters, or automobile. It is for people who worry about not having high enough limits, and for people who have assets to protect that are vulnerable to a large claim or judgment.
This is how umbrella insurance works. You have liability insurance on your home, If you own the home it is homeowners. If you rent it is renters. The policy will pay up to $300,000 per person per claim. Someone comes into your home. They slip and fall. Their damages including medical bills, lost wages, and disability total $600,000. Your liability coverage pays out the limits of $300,000. The injured party then pursues you personally for the balance of $300,000. An umbrella policy of $1,000,000, for example, would step in and pay that balance.
Umbrella coverage is made for people who need extra coverage due to their financial situation. If a person had no assets, the injured party referenced above would just accept the $300,000 and move along. If there assets to be reached, that injured individual will pursue those assets.
The umbrella protection covers all liability policies a person possesses. The most likely need is automobile insurance. An injury in an accident involving a motor vehicle can easily exceed the limits of a policy. Although a person may buy umbrella coverage to cover their motor vehicles, they get coverage for every policy.
The major benefit of umbrella coverage is a raising of liability limits on all policies at a relatively low cost. An insurance company only pays when the limits are exceeded. In reality, that is a rare event. It is enough of a possibility, though, to spur a wealthy individual, or any individual with vulnerable assets, to seek protection at a small cost.