An extra layer of coverage is purchased as additional protection above the limits of another insurance policy. Whereas most auto and home insurance policies provide less than $1 million in coverage, an umbrella policy can add millions of dollars worth of protection over those set policy limits.
A relatively affordable type of coverage, an umbrella policy is so named because it sits on top of other liability policies to provide extra protection, like an umbrella. Often used in situations that could result in great expense or loss, it can also settle legal claims.
For instance, if you receive a court judgment of $500,000 against you for your part in a car accident, but your auto insurance policy only covers $300,000 in liability per accident, an umbrella policy would cover the remaining $200,000 (provided you purchased that much additional protection).
If you own high-value items, such as antiques or art collections, umbrella insurance can be a great way to insure them against theft or damage.