Umbrella insurance was, at one time, a policy designed for people of substantial means, with substantial assets to lose in a liability suit. In today’s litigious world, umbrella coverage makes sense for many of us who are simply salaried homeowners or people with some assets and active lifestyles.

Umbrella policies supplement the liability coverage you already have through your home and auto insurance and provide an extra layer of protection. Umbrella policies are no longer just for the wealthy – they’re for anyone who has assets that might be at risk if they are responsible for a serious accident.

If you don’t have enough liability coverage to resolve a claim or a lawsuit, the person bringing the action might go after your home or your other assets to pay for damage. Umbrella policies cover damage claims that you or your dependents may cause.

Umbrella policies take effect after the liability insurance in your homeowners and/or auto policy runs out. For example, if you have a home insurance policy with liability coverage of $300,000, the umbrella policy will pay claims above that amount up to the limit you have chosen for your umbrella policy.

Most of the risk is assumed under the primary auto or home policy, which is why personal liability umbrella is so inexpensive. You can buy a $1 million or larger umbrella policy for less than $200 a year.

Many companies insist that you carry both your auto and homeowners’ coverage with them before they will sell you an umbrella policy. In addition, your insurer may stipulate that your auto or homeowners liability limits be at some minimum amount. Umbrella policies are usually sold with a deductible that might run anywhere from $250 to $1,000. If you’re on the hook for a multimillion-dollar lawsuit, that’s a small price to pay. Even then, umbrella policies have limits. Many of them will not pay punitive damages, should you lose your case.