Umbrella insurance.
In plain English
Your auto and homeowners policies have liability limits, often $100,000 to $500,000. An umbrella policy adds another $1 million or more on top, kicking in after the underlying policy maxes out. It covers liability (harm to others and their property, plus some claims like libel), not your own stuff. Because it only triggers on rare, large events, it's among the cheapest insurance per dollar of coverage.
01Why it matters
A serious at-fault car accident can produce judgments far beyond auto policy limits, and your future wages and assets can be on the hook for the difference. Umbrella coverage is how households with savings protect them.
02The math, step by step
You're at fault in a crash with $800,000 in injury liability. Auto policy pays its $300,000 limit. Without an umbrella, the remaining $500,000 is your problem. A $1 million umbrella, typically a few hundred dollars a year, pays it.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Umbrella insurance is protection for your assets when you're liable to someone else, not more coverage for your own property.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice