The main purpose of an umbrella policy:

Is to protect your assets from an unforeseen event, such as a tragic accident in which you are held responsible for damages or bodily injuries. If another party files a lawsuit against you, your umbrella coverage will pay for the damages you're legally responsible for up to the policy limit. The umbrella policy provides additional coverage or “excess liability” above the limits of your basic policies. It can protect you from bodily injury liability claims and property damage liability claims. Umbrella policies also provide a broader form of coverage and can help cover legal fees, false arrest, libel, and slander.

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It is used when:

Your umbrella insurance can come into play if you are found liable and need to pay

damages, or if you are sued and need to pay for your legal defense – even if the result is that you are not found to be responsible. An umbrella policy only pays once your basic liability limits have been exhausted or the claim is excluded from the basic liability coverage. The claim will be made against you, the policyholder, on behalf of the wronged party. Then your insurance company may pay the settlement amount up to the limits of your coverage. If the settlement amount exceeds your coverage limits, you are responsible for paying the remaining amount out of pocket.

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What are you protecting:

Your car, house, investments and retirement accounts, as well as your normal checking and savings accounts and even future income, are all considered assets. It is important to know that if you are sued for a lot of money and do not have enough liability insurance or an umbrella policy to cover those costs, all of your assets are exposed. People typically choose to buy an umbrella policy because they want to prevent the possibility of financial ruin due to one misstep or unforeseen accident. Umbrella insurance can provide the protection to prevent such an outcome.