Umbrella insurance refers to an insurance policy that protects the assets and future income of the policyholder above and beyond the standard limits set on their primary policies.
Typically, an umbrella policy is pure liability coverage over and above the coverage afforded by the regular policy, and is sold in increments of one million dollars. The term "umbrella" is used because it covers liability claims from all policies underneath it, such as autos and homeowners policies.
For example, if you have an auto insurance policy with liability limits of $500,000 and a Homeowners policy with a limit of $300,000, then with a million dollar umbrella, your limits become in effect, $1,500,000 on the auto policy and $1,300,000 on a homeowners liability claim.
Umbrella insurance provides broad insurance beyond traditional home and auto. It provides additional liability coverage above the limits of your homeowner's, auto, and boat insurance policies.