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The liability policy limit does not technically affect a settlement or judgment amount - in other words, it does not limit what a person can recover.
But as a practical matter, it often does. Because most of the time, the defendant doesn't have significant assets to collect against. If, for example, the defendant doesn't own a house with significant equity, he is usually pretty much "judgment proof."
So if you get significantly injured, it is much, much better if the guy with the $1 million policy is at fault. If you have $1 million in damages, you will end up collecting more from that guy and his insurance than the $300K limit guy. That is esp. true because if someone has a $1 million umbrella policy, the probably ALSO has significant personal assets he is trying to protect. He is going to put significant pressure on the insurance company to settle for the policy limits.
The minimum or average policy limits guy probably has little or no net worth.
You don't often heare of people losnig their houses to pay settlements or judgments, but then again, you probably don't hear of people not losing their houses, either. If you injure someone in an accident and have $750K in equity in your house, and have $100K insurance, you likely will lose the house. (If you were crazy enough to not sell it the day after the accident!).
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