Definition
Extra liability coverage (commonly 1-2 million dollars) that sits on top of auto and home policies. Inexpensive protection once your net worth is large enough to be worth suing.
Why it matters
Once assets grow, the biggest uninsured risk is a lawsuit after a bad accident. An umbrella policy covers the gap between your auto policy's limit and your net worth for a few hundred dollars a year.
Example
A household with $600,000 of net worth causes a serious car accident with damages beyond the auto policy's $300,000 limit. Their $1 million umbrella policy, costing about $200-300 a year, covers the difference instead of their savings.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.