Final answer:
A Personal Umbrella policy is additional coverage that cannot exist independently; it is designed to extend the liability coverage of an underlying policy when its limits are exhausted. This type of policy offers wider protection and higher limits to safeguard an individual's assets beyond standard insurance.
Step-by-step explanation:
A Personal Umbrella policy cannot be written as stand-alone coverage. Umbrella policies must always be written to broaden and/or extend the coverage of an underlying liability policy. A Personal Umbrella policy is an extra layer of protection that kicks in when the limits of your basic liability coverage are reached. It covers you for a broader range of scenarios and increases your liability limits beyond the standard policy. For instance, if you're at fault in a car accident and the damages exceed your auto insurance liability limits, your Personal Umbrella policy would help cover the remaining costs up to the limits of the umbrella policy.
Importance of Underlying Liability Policy
Before you can purchase a Personal Umbrella policy, you usually need to have a certain amount of liability coverage on your underlying policies, such as auto or homeowners insurance. This arrangement ensures that your basic liability coverage handles initial claims, with the umbrella policy serving as an additional safety net.