Umbrella insurance is insurance that goes on top of another policy. It is a second policy that you pay for separately from the first. It is usually purchased in conjunction with a homeowners policy, or sometimes a renters policy. It is usually sold as additional liability protection (as in, if you seriously injured someone else, this policy adds on to your liability limits). However, it is also available to add on to your uninsured and underinsured motorists coverage.
Most companies that sell umbrella insurance require you to have a certain level of initial coverage. So if it’s an automobile policy, you’ll commonly see a requirement to have $250,000 or $300,000 underlying liability, or uninsured/underinsured motorist coverage. Then you can buy another policy on top of that amount, usually in a very large amount ranging from $500,000 to several million. That policy sits on top of the lower policy and only comes into play if those underlying amounts are exhausted first.
It’s very important, especially if you are a high earning person, that you have umbrella coverage for both liability, and uninsured and underinsured motorist coverage. Otherwise, if you hurt somebody very severely and you don’t have enough underlying coverage, the person you hurt could go after you for more costs and payments above your insurance policy. You don’t want to see that happen; you want to protect your assets. Also if you are well off and your underlying uninsured and underinsured motorist coverage only covers less than a year of wages, you need to make sure that your umbrella adds that million or two million dollars on top if you are seriously injured and can’t work, heaven forbid, for the rest of your life.