What is the primary purpose of an umbrella insurance policy, and how does it typically coordinate with underlying liability coverage?

The primary purpose of an umbrella insurance policy is to provide an extra layer of liability coverage above and beyond the limits of your existing homeowners, auto, and other liability insurance policies. It protects against catastrophic financial losses resulting from lawsuits or other covered claims where the damages exceed the limits of the underlying policies. An umbrella policy typically coordinates with underlying liability coverage by requiring you to maintain specific minimum coverage limits on your primary insurance policies (e.g., $300,000 on auto and homeowners). If a claim occurs that exceeds these underlying limits, the umbrella policy kicks in to cover the excess liability, up to the umbrella policy's coverage limit (e.g., $1 million or more). The umbrella policy acts as a secondary layer of protection, filling the gap between the primary insurance coverage and the total amount of damages for which you are liable. Without an umbrella policy, you would be personally responsible for paying any amount exceeding your primary policy limits, potentially jeopardizing your assets and future income.