Chances are slim that you will lose a lawsuit for a sum greater than what your existing insurance will pay. But if you ever did find yourself in that situation, you could lose all your savings and other assets. A good umbrella policy can prevent that nightmare from happening.

Umbrella insurance is a type of personal liability insurance that can cover claims in excess of the limits of your regular insurance policy. Below, we’ll take a closer look at this extra liability coverage: how an umbrella policy works, who needs it, how much it costs and what it won’t cover.

Umbrella insurance is a type of personal liability insurance that can be indispensable when you find yourself liable for a claim larger than your homeowner’s insurance or auto insurance will cover. If you own a boat, umbrella insurance will also pick up where your watercraft’s liability insurance leaves off.

Here are some examples of incidents where an umbrella policy could provide financial coverage if your homeowner’s insurance or auto insurance isn’t enough:

– Your dog runs out of the house and viciously attacks a neighbor who was going for a walk. Your neighbor sues you to cover her medical bills, lost wages, and pain and suffering.

– Your daughter gets into a fight at school and punches another girl, breaking her nose. The girl’s parents sue you.

– You cause a 10-car accident and your auto insurance property damage coverage isn’t high enough to replace all 10 accident victims’ vehicles. Nor is your personal liability coverage high enough to pay for their medical bills.

– You send sandwiches to your son’s school for a field trip lunch. Several students develop food poisoning and their parents sue you.

– Your teenager throws a party at your house while you’re out of town. Someone brings alcohol to the party, and one of the guests is arrested for driving under the influence on the way home. You are sued.