Personal umbrella coverage is an excess coverage that doesn’t cost much at all. It covers what primary policies do not cover based on the limits of those policies. It also covers personal injury claims while primary policies do not. This is because primary homeowners insurance and auto insurance policies usually cover per occurrence limits of up to $500,000 (in some cases much less).
To a client this may sound like a really high limit but if you look at an accident with casualties, or even death, this amount will not cover the event entirely, unless the client has personal umbrella insurance. If your client is without this protection and has an especially bad accident (s)he may have his/her savings depleted and even wages garnished to pay off the remaining balance on a claim. However, for a small amount each month, your client may be able to get coverage anywhere between $1 million and $10 million. Best of all, tell your client that with a personal umbrella policy, they will likely never be sued.
Who Needs Umbrella Insurance?
If your client owns property, has significant wealth (including assets) and if they travel abroad where they may be sued they should have a personal umbrella policy. Other clients simply have potentially hazardous assets or pets (swimming pool; aggressive dogs) and should consider buying an umbrella policy. Also, a client should consider buying it if they have hobbies that may prove injurious to another party (does your client coach his daughter’s soccer team? Or, is he an avid skier who may hurt another party on the slopes?).
Umbrella Insurance Cost
As mentioned earlier, umbrella insurance is very affordable and costs so much less than primary insurance. For this reason, it’s beneficial not to raise the limits on one’s primary insurance policies and to rely on the umbrella insurance for any claims that may exceed the standard limits on, say, an auto insurance policy. While rates and pricing vary for different people, a standard umbrella insurance quote for a $1,000,000 umbrella policy for two drivers with home insurance is about $150 a year! The average cost for $1 million policy, however, is $383 a year, still a very low price for what it may cover. It’s always a good idea for your client to buy enough coverage to cover their net worth.
Is Umbrella Insurance Worth It?
As a standalone umbrella insurance policy or as a supplemental coverage, personal umbrella coverage is beyond worth it, especially if your client is wealthy. What’s different about umbrella insurance is that it not only supplements a primary insurance policy after limits have been exhausted, it can also act as the primary coverage for certain losses that are not covered by a primary policy (home, auto, business, etc).
Umbrella Insurance for Personal Injury Coverage
Let’s say your client was the victim of wrongful eviction, wrongful entry or false arrest. Let’s also consider common personal injury lawsuits, such as defamation, disparagement or malicious prosecution. If your client experiences one of these losses, there are no primary insurance policies that would cover him/her. However, if your client has an umbrella insurance policy, they would be covered for personal injury protection -- even emotional distress, which primary policies often do not cover.
Should I Offer My Client an Umbrella Policy with the Same Insurer of Primary Policies?
Yes and no. The option of having a standalone policy has its pros and cons. It would be beneficial to try and cover your client with the same insurance company that takes care of one or all primary policies for a multi-policy discount. The benefit from the coverage would probably be more seamless too if your client had one insurer. While it may act as a standalone policy, if it’s with the same insurer, the chances of having no out-of-pocket expenses at all is more likely. If you have a separate standalone umbrella policy on your client, the wording of that policy against the primary policy may leave unprotected gaps in the coverage.
However, having a different insurer write a standalone umbrella policy is sometimes beneficial when the insurer of the primary insurance will not cover the loss. The umbrella policy insurer may help to get the primary insurance company to cover the loss or lawsuit so they don't have to contribute (or they can't).
Remember, your client must have auto or property insurance to be eligible to buy umbrella coverage.
What Does an Umbrella Policy Cover?
If you’re still feeling unsure about how to sell this coverage to your clients, here’s a quick primer to catch you up on the script you’ll want to customize for each client as per their financial profile.
Remember that an umbrella policy is not an all-inclusive or comprehensive policy that covers anything and everything that a primary insurance doesn’t.
An umbrella policy only covers liability and defense costs, not personal loss. It may cover an excluded loss on a primary policy or it may extend additional coverage for losses that go beyond the primary policy’s limits.
It may cover a client who is being held responsible for bodily injury, property damage or some other type of personal injury.
What Does an Umbrella Policy NOT cover?
An umbrella insurance policy will not cover physical property damage that is covered in standard homeowners and auto coverage (storm damage to one’s own car, burglary of one’s home). However, if your client hit someone’s car and their liability insurance falls short of covering the damage to that person’s car, the umbrella policy will kick in. If they drive into their buddy’s house by accident, their personal umbrella policy will pay to fix damages to the house after car insurance maxes out limits.
Umbrella Insurance for Rental Property
If your client has any real estate investments, especially in rental property, an umbrella policy will protect him/her if there’s ever a lawsuit. In order to be covered, it’s important for your client to have a standard landlord liability insurance policy. This will be the primary policy to cover them. You should first press your client to pressure his tenants into buying renters insurance through you.
Most clients will misunderstand what an LLC protects (assets in the state the LLC was registered in). With that said, an umbrella policy doesn’t replace an LLC. One is more appropriate for an event over another usually. For instance, if your client owns property and there is a fire and people perish in that fire, there will likely be lawsuits claiming negligence and more. An LLC would not shield that client from personal bankruptcy if there is a large settlement for the victims’ families. An umbrella policy would.
Every situation is different. Make sure to do your research on your most valuable clients to ensure that they have the right insurance products protecting them every step of the way. Not only will you profit from these sales, you will prove to be an invaluable resource for others who hear what a wonderful job you're doing too.
Is a Commercial Umbrella Insurance Policy Different from a Personal Umbrella Policy?
Yes, slightly. A commercial umbrella policy extends additional liability limits above the primary limits on a commercial general liability policy, commercial auto policy and employment liability policy. It may also schedule over a professional liability policy. Commercial umbrellas offer a per occurrence limit, a policy aggregate and a self-insured retention (SIR). This is a valuable type of policy to have if your client owns a business.