What is the purpose of 'umbrella insurance'?

Umbrella insurance is designed to provide additional liability protection that goes beyond the limits of standard homeowners, auto, or boat insurance policies. This type of coverage comes into play in situations where an individual is held liable for damages that exceed the coverage limits of these primary insurance policies. For example, if a person is involved in an accident that results in significant damages or medical expenses, the umbrella policy will cover the amounts that exceed what the individual's auto insurance will pay.

This safeguard is particularly important for individuals who have significant assets to protect, as it can help shield them from potential financial losses, legal fees, and settlement costs that arise from lawsuits or claims. The umbrella policy serves as an extra layer of security, ensuring that the policyholder is better protected against high-risk situations that could lead to substantial liability. Other options provided do not align with the primary function of umbrella insurance; for instance, umbrella insurance does not reduce coverage limits or offer basic property protection, nor does it specifically address workers' compensation claims.