A serious crash or a guest's fall can produce a judgment far above the limits on an auto or homeowners policy. Whatever the policies do not pay can come from the insured's savings, home equity and future income. An umbrella is the low-cost way to put a much bigger cushion on top.
Main benefits:
High liability limits against a catastrophic judgment, usually at a modest cost compared with the primary policies.
One added layer that sits over several underlying policies at once, such as auto, homeowners and watercraft liability.
Some broader coverage: it may respond to certain claims the underlying policies do not cover, after a retention.
Protection of assets and future earnings.
What an umbrella is not: it does not replace the primary policies. The umbrella insurer expects the underlying coverage to stay in force, and the insured still needs primary auto liability. It is liability coverage only, so it does not pay for the insured's own property or the insured's own medical bills.
Example: Lena has auto bodily injury limits of $300,000 per person and a $1,000,000 umbrella. She causes a crash, and one injured person wins a covered $800,000 judgment. The auto policy pays $300,000 and the umbrella pays the other $500,000. Without the umbrella, that $500,000 would come out of Lena's own pocket.