Because umbrella insurance is designed for those really rare rainy days, it's relatively inexpensive. It is also versatile. Umbrella insurance provides additional coverage not only for your auto policy, but also your homeowners or renters policy. Further, umbrella insurance covers things auto, homeowners and renters policies don't.

Such as? In the insurance world, there's something called "personal injury." This is not damage to someone's body, but to his or her career or reputation.

Example. Imagine you say in public that a certain person is a lying, no-good, etc.. Maybe you really believe this to be true, but the person is very offended. He or she can sue you for slander (if you say it) or libel (if you write it). If this happens, your umbrella policy will provide coverage, including legal fees, up to the limits of the policy.

Umbrella insurance also covers personal injuries such as invasion of privacy, wrongful entry, wrongful eviction, false arrest, false imprisonment and malicious prosecution. Some umbrella policies will provide coverage if you are sued because of your service on the board of a civic, charitable or religious organization.

Note. Umbrella insurance doesn't cover everything. For example, if you are sued and the court assesses punitive damages against you, those damages won't be paid by your umbrella insurance. What are punitive damages? They are damages awarded to someone in order to punish the person being sued. Punitive damages are awarded for outrageous, totally reckless conduct - at least what a judge or jury perceives to be outrageous, totally reckless conduct.

You can usually buy umbrella policies with $1 million limits for $150 to $300 a year. If you need more than $1 million limits, you can usually buy each extra $1 million of coverage for $100 to $200. Think about this. For only a few hundred dollars, you can increase your per-person liability limits 10 times, 20 times, even 30 times - and it applies to both your auto and homeowners or renters policies as well.