Jack Hungelmann | April 1, 2011
Most umbrella insurers require that they have one or more underlying policies in order to offer their personal umbrella policy to a customer. Some insurers require all underlying liability policies. But there are a few personal umbrella insurers out there that don't require any other insurance. Just how good are these stand-alone policies? This article attempts to answer that question.
So the obvious question might be: "Why aren't you writing the umbrella policy in the same company as the underlying insurance?" Here are a few of the more common reasons.
For this article, I review the following four different umbrella policies for which underlying insurance is not required.
Click here for the Stand-Alone Umbrella Policy Comparison Chart. Note that these analyses are done by me personally; I share them with readers for illustrative purposes only. I compare all umbrella policies as to how well they cover the gaps—common liability risks not covered by auto or homeowners policies and for which coverage is also not available. The umbrella policy forms may be different in your state or may contain endorsements unique or specific to your state, so it is critical that readers perform their own analysis when selecting insurance policies.
Here are some features common to the group as a whole.
The number one most important factor in choosing any umbrella is to get coverage for as many of the coverage gaps as possible. To identify those gaps in coverage, I find that some kind of checklist or questionnaire is very helpful. (See Creating an Umbrella Coverage Checklist.)
Using my comparison form for stand-alone policies, here are 10 examples of gaps and how each of these 4 policies covers them.
Chart # | Gap # (1-10) | Gap Description | Analysis |
8 9 | 1 2 | Client rents an 80-foot houseboat for a 2-week vacation. Risks include: 1) Bodily injury and property damage to others. 2) Legal and contractual liability for damage to a $250,000 boat. | 1) Choose USLI. (RLI covers rented boats only up to 45 feet.) 2) None of the four companies covers this gap. Auto-Owners will cover you if you place your homeowners coverage there. |
10 | 3 | Your client owns a tractor and often plows the driveway or cuts the lawn of an elderly neighbor. (The homeowners policies often exclude use of service vehicle if ever used off the resident's premises). | Choose all but American Alternative. |
11 | 4 | Your client is retired and has no personal automobile. But he does need "drive other cars" coverage when he rents or borrows other vehicles (i.e., on vacation). | Choose all but American Alternative. |
12 | 5 | Your client has a company-furnished vehicle and no other personal automobile. Her employer has broad form DIC coverage for her use of nonowned vehicles. But the business auto policy contains the usual exclusion for injuries your client causes to coworkers riding with her (i.e., the fellow-employee exclusion). | Choose RLI. It's the only freestanding umbrella policy to cover this gap without requiring an expensive named nonowner policy as primary coverage. |
13 | 6 | Joe is 80 years old. He has no car and no longer drives, but he occasionally needs to be driven by others to doctor appointments, shopping, etc. Under principal/agency statutes and case law, Joe can be sued if his driver causes an accident, but Joe has no personal auto insurance policy and therefore no coverage. | Choose USLI, who provides vicarious auto liability without requiring underlying insurance. |
15 | 7 | Bill works occasionally from home (telecommutes). His homeowners policy excludes injuries to those who come on the premises for business purposes. (Like a courier or UPS delivery person who falls on Bill's icy driveway while delivering a business package.) | Choose anyone but USLI, and be sure the client adds an incidental occupancy or business pursuits endorsement to his homeowners policy because the umbrella coverage is following form. |
16 | 8 | Tom's 22-year-old son repairs neighborhood bicycles from the garage during the summers. Both the premises liability risk and the completed operations/products liability risk are probably uninsured. Homeowners policies exclude business-related lawsuits. | Choose Auto-Owners only. Summer part-time jobs would not be considered business because they are not the individual's "trade, profession, or occupation." American Alternative does cover this risk but only if the child is under age 21. |
17 | 9 | 80-year-old Charlie needs some help getting dressed and eating. So his family helps him hire a part-time care provider to come into his home. He buys a small workers comp policy which includes employer's liability coverage, but he's looking for excess coverage. | Buy the umbrella with Auto-Owners or USLI. Both require underlying employers liability coverage, so be sure to buy enough extra employers liability coverage to meet the threshold. |
28 | 10 | Your clients have a strong desire for excess uninsured and underinsured motorist coverage. | Choose RLI, USLI or American Alternative. (Depending on the state, Auto-Owners may offer it as well.) |
So how did these stand-alone umbrellas fair? Out of a possible 10, Auto-Owners would cover 5. RLI covers 5 also. USLI scored 6. And American Alternative just covered 1. Interestingly, with supporting underlying coverage, Auto-Owners covers 9 of the 10 coverage gaps listed, and Chubb's new 2010 umbrella covers all 10! Click here to see the All Companies Umbrella Comparison that includes the new 2010 versions from Chubb and RLI.
Obviously, none of the four policies I've looked at here cover all of the different types of risks listed in the chart. But virtually no client ever has that many exposures in their lives that are not covered by primary policies. The secret is to know what your umbrella policies do or don't cover, to use some kind of questionnaire to identify what gaps your client has that aren't covered by the primary policies and can be covered by umbrella policies. And then, third, to know enough about your umbrella policies' coverages to be able to choose the policy for the customer that covers the most important gaps, even if it can't cover all of them. I hope that this article helps you with that process.
Jack Hungelmann's book, Insurance for Dummies, contains much of this information and is available at your favorite bookstore or online. For more information on his risk management and insurance business, go to www.JackHungelmann.com, where you can check out sample newsletters, brochures, and other articles written on various issues.