To best answer that question, consider the assets you own, and the role they play in fostering your financial security. When thinking about assets, there are obvious items that come to mind: your car, house, investment accounts, and checking and savings accounts. But more broadly, even your estimated stream of future income can be viewed as an asset. In fact, it may even prove to be the most valuable asset of all.

In the event that you become the target of a lawsuit for a substantial sum of money, but don’t have enough insurance to cover the damages that may arise, the expenses would have to come out of pocket. This could create significant financial hardship. An umbrella policy can forestall the prospect of financial ruin due to an unintentional misstep or an unforeseeable accident.

You may also wish to consider increasing the liability limits on your auto or homeowners insurance policies. This strategy may suffice for some common mishaps, but may not protect against all potential expenses. For example, a car accident could result in court proceedings, or an idle remark made on social media could lead to a lawsuit for slander. Unfortunately, the possibilities are endless.

Umbrella insurance picks up where other liability policies leave off, both in terms of dollar limitations and scope of coverage. Put simply, it provides extra (or “excess”) liability coverage and is effectively insurance of last resort, but coverage will not take effect until after other sources of coverage have been used fully.