What is an Umbrella Policy?

Well, if you think about it, an Umbrella protects you from a rainy day.  The same concept applies.  An umbrella protects you from a really rainy day when it comes to liability.  

Umbrella policies are a great, and inexpensive way to dramatically increase coverage for personal liability beyond what your automobile or homeowners insurance will cover.

Why would I need an Umbrella Policy?
Let's look at a scenario.  Hypothetically, let's say you are a great and responsible driver and you carry the state's recommended 250/500 liability limits on your auto policy.  You are driving home from the grocery store, and you have a medical emergency that causes you to momentarily black out.  When you awake, you see smoke and your car is damaged beyond repair.  Through the broken glass, you see another car and the occupants are very badly injured.  One of the children's arm is crushed and will need to be amputated.  His quality of life is not what it was going to be.  

A little while later, you receive a notice that you are being sued as a result of the accident, and it goes to trial.  The jury awards the little boy $1.2m for pain and suffering.  Your liability limits were up to $250,000 per person, and $500,000 per accident.  Since the total was $1.2M awarded to one person, your auto policy will only pay $250,000 to that little boy.  The remaining balance will have to come from your assets and your wages may be garnished.  

If you had an umbrella, it would help cover the remaining balance up to the policy limits.  Typically, umbrellas start with $1m worth of coverage and can increase as much as you need.