Umbrella insurance is a type of insurance that protects policyholders from lawsuits and major claims; it is generally considered as additional liability insurance that covers claims in excess of traditional policy limits. Umbrella insurance, according to Geico, can protect the policyholder's assets more fully than traditional policies alone.
Umbrella insurance is purchased in addition to any homeowners, automobile or boating insurance that a policyholder owns. When the liability on other insurance policies has been exhausted by a lawsuit or a major claim, umbrella insurance is activated. It can provide coverage for claims that are in excess of traditional liability policies, and it can also protect the policyholder from claims that might arise from slander, libel or false arrest. For landlords, umbrella coverage protects against liability incurred on the premises of rental units.
An instance when umbrella insurance might come into play includes injuries due to an accident where the policyholder is deemed at fault and an auto insurance policy limit is insufficient to pay a large monetary award. Other examples are when the awarded damages resulting from the policyholder's pet causing serious injury to a person, or awarded damages resulting from when someone falls in the policyholder's home or on his property exceed the policy limits, as stated by Geico.