An umbrella policy sits on top of one or more underlying insurance policies, such as homeowners or auto insurance, and generally does not activate until the liability limits of those underlying policies have been used up.

In addition to extending the amount of available coverage, an umbrella policy can sometimes provide broader protection than the underlying policies alone, picking up certain types of claims that the base policies might not fully cover.

Umbrella coverage typically applies to bodily injury and property damage claims, and depending on the specific policy, may extend to certain personal liability claims such as defamation or false arrest.

Because umbrella policies often provide broader geographic or activity-based coverage than a single underlying policy, they can respond to situations that fall outside the narrower scope of a homeowners or auto policy alone.

Insurers issuing umbrella policies typically require the policyholder to maintain specific minimum liability limits on their underlying homeowners and auto policies, since the umbrella policy is designed to supplement, not replace, that coverage.

Like most liability insurance, umbrella policies generally exclude intentional acts and criminal conduct, and business-related liabilities are often excluded unless specifically added through an endorsement.

An umbrella policy is often purchased by people who want to protect significant assets, savings, or future earnings from being exposed in the event of a large liability judgment that exceeds their underlying policy limits.

Because it adds a substantial layer of coverage relative to its cost, an umbrella policy is a common tool for managing the financial risk of an unusually severe lawsuit.