What Does an Umbrella Policy Cover?

An umbrella policy can rescue people who are the targets of expensive lawsuits. This form of extended insurance increases a policyholder's protection against large monetary settlements or claims, according to MSN Money.

Protections

Umbrella insurance extends the coverage provided by an insurance holder's other policies. This type of coverage can potentially save the policyholder millions of dollars if a lawsuit or settlement requires more money than the home or auto insurance can cover.

Coverage Levels

Umbrella insurance usually provides $1 million to $5 million in coverage, depending on the policy. The coverage takes effect after the policyholders exhaust their auto or home insurance coverage. The umbrella coverage then pays as much of the remaining balance owed as its limit allows.

Considerations

Some people may need umbrella coverage more than others, depending on their lifestyle. Drivers in high-income areas, for instance, may face a heightened risk of an auto accident or injury involving a wealthy second party, according to MSN Money. Homeowners in such areas may need to insure themselves against injuries that occur in their homes.

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