Essentially, an umbrella insurance policy provides extra coverage for liability claims that go beyond your regular auto or home policy’s limits.
Typically, an umbrella policy covers bodily injury, personal injury, property damage, and personal liability claims. This coverage kicks in only after your regular insurance policy pays out your maximum benefit.
For example, let’s say your car insurance has a $100,000 liability limit. You’re involved in a collision with another driver, who gets injured, and you’re at fault. You’re responsible for that driver’s $300,000 in medical bills, property damage, and legal fees. Your auto insurance pays the $100,000 maximum. Umbrella insurance may cover the remaining $200,000, protecting your assets (such as equity in your house); otherwise, you’d have to come up with the cash.
The minimum protection offered by most umbrella insurance policies is $1 million, which typically costs less than $25 a month, according to the Insurance Information Institute.