Umbrella insurance is additional liability insurance that will protect you financially if you are sued for a large amount of money. Auto and home policies have limits in terms of the dollar amount they will cover; these limits are agreed upon at the time you set and sign the policy and can often help to determine the price. The higher the limit, the higher the cost of the policy.
But limits are limits, and by definition carriers will not exceed them in their payouts. If you want fiscal protection against a large lawsuit, umbrella insurance is the way to go.
As you've likely gleaned by now, the term "umbrella" does not literally refer to the hand-held instrument that protects you from the rain. It's a metaphor, referring to how the policy shields holders more broadly than does primary coverage.
Here are some examples where umbrella insurance might be in your best interests.
Umbrella coverage may seem like an extremely cautious step -- insurance on top of insurance. But a glance at the numbers shows that for a few extra dollars each month, you can protect yourself from a catastrophic loss. Most policies cost only $250-$600 a year, which is likely a small price to pay to further protect your most valuable material assets.