A personal liability umbrella policy provides additional coverage above and beyond your underlying policies, like homeowners or auto. And one umbrella can extend the liability protection on both policies and more. To better understand how an umbrella policy works, consider the following. You are liable for $1,200,000 in damages due to an auto accident and your auto policy has $500,000 limits. An umbrella can cover the additional $700,000 owed after your auto policy limit is met.