What is an umbrella insurance policy?
An umbrella policy provides additional coverage beyond the limits of the basic homeowners or automobile policy. It is on top of, or in addition to, the amounts of the underlying policy. You cannot obtain an umbrella policy unless you already have an underlying policy, usually at a higher limit than the mandatory minimum. The umbrella policy is usually owned by someone who has significant assets to protect.
Another good reason to have an umbrella policy, even if you do not have significant assets, is that the policy can also be used to add an additional layer of underinsured motorist (UIM) protection to an auto policy. UIM is designed to protect you and anyone in your vehicle should an accident occur with a driver who either lacks insurance at all or lacks sufficient insurance to pay fair value on the claim. Having an umbrella policy that not only provides an additional layer of liability insurance, but also greater protection for you and your family, can be a good idea. Umbrella policies are usually not terribly expensive either, as they rarely are triggered. On the other hand, should you be involved in an accident that results in catastrophic injuries, then the umbrella policy can be the thing that prevents the accident from causing not only serious injury, but also financial ruin.
Not all umbrella policies have a UIM component to them. Be sure to consult with your insurance agent to make certain you actually are obtaining the coverage that you want.