An umbrella insurance policy is an excess insurance policy that only gets triggered if the underlying limits of your initial policy have been paid in full. For instance, every insurance company has a different requirement, but if they are going to sell you an umbrella policy, it probably requires the bodily injury limits to be $300,000 or something like that. Say the accident is really bad – the driver is in ICU for an extended period of time, and so the medical damages are in excess of $300,000.
In this scenario, your limits on the underlying policy pays $300,000, and then that insurance company knows that it no longer has the duty to pay anything anymore. But, if you have an umbrella policy, that umbrella policy will come in and also pay money up to the limits of that umbrella.
Basically, that umbrella is just extra insurance.