An extra layer of liability insurance that kicks in after the limits on your auto, home, or other underlying policy have been used up.

Think of it as backup coverage for a bad day that turns into a very expensive claim. If someone is badly hurt in a crash, a dog bite, or a serious accident on your property, the bills, lost wages, and pain-and-suffering claim can blow past a standard policy fast. A personal umbrella policy usually adds $1 million or more in coverage, but it does not automatically cover everything. Insurance companies usually require certain minimum limits on the policies underneath it, and the umbrella may exclude some acts, business activity, or intentional harm. Read the exclusions, not just the dollar amount on the declarations page.

For an injury claim, an umbrella policy matters because it can change the size of the available recovery and the strategy of settlement talks. If the person who caused the injury has one, there may be more money available after the main liability policy is exhausted. If the insurer refuses to settle fairly within limits, that can raise bad faith issues under state law. Practically, ask early whether any umbrella or excess coverage exists, request all policy disclosures allowed by your state, and do not assume the first policy limit you hear is the only one.