What is the purpose of "umbrella insurance"?

Umbrella insurance serves a crucial role in risk management by providing an additional layer of liability coverage that goes beyond the limits of standard primary policies, such as auto or homeowners insurance. When a policyholder encounters a situation where their liability exceeds the coverage limits of their existing insurance policies, umbrella insurance helps cover the excess costs. This can be particularly important in situations involving significant claims, such as serious injuries or property damage that result in expensive lawsuits.

The comprehensive nature of umbrella insurance helps protect individuals and businesses from catastrophic financial losses. By offering higher limits, it ensures that policyholders are better safeguarded against the unforeseen and could prevent substantial out-of-pocket expenses following high-stakes liability claims. This function distinguishes umbrella insurance from basic property coverage or other types of insurance that focus on specific incidents, such as natural disasters or lost wages.