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.
The price. USAA is a great example of that. It is extremely competitive on automobile and homeowners policies but, for some reason, is not competitive on the umbrella, in my opinion.
Driving record. One or more of the drivers in the family may have a recent driving while under the influence (DUI) ticket or one too many tickets and/or accidents to qualify for the underlying insurer's umbrella policy.
The financial strength of the umbrella insurer. For example, the underlying insurance insurer may have a B+ A.M. Best rating—good enough for the primary insurance coverage but not good enough for a $5 million or $10 million umbrella policy.
Plugging liability insurance gaps. To find coverage for one or more significant liability exposures not covered by primary auto or homeowners policies nor by the underlying insurer's personal umbrella policy. How to accomplish just that is the focus of this article.
Higher limits. The need for higher limits on the umbrella policy than are available from the primary insurer. For example, many insurers only offer $2 million limits maximum. Most limit their maximum offering to $5 million. This is not enough for an affluent client needing $10 million or more coverage.
Excess uninsured/underinsured motorist coverage. An insured may desire to have excess uninsured and underinsured motorist coverage—an option not available through most primary umbrella insurance companies.
For this article, I review the following four different umbrella policies for which underlying insurance is not required.
Auto-Owners—a preferred market in 17 states available through contracted agents. Auto-Owners, with supporting underlying coverage, has one of the broadest umbrella policies on the market. Without the underlying coverage support, the policy loses a lot of its substance. To Auto-Owners' credit however, it is one of the few remaining preferred insurance markets to offer any kind of stand-alone umbrella policy.
RLI—available to independent insurance agents. Endorsed by the Independent Insurance Agents and Brokers of America. One of the positives of RLI's umbrella is that it automatically includes coverage for trusts and trustees if covered by underlying policies.
USLI—available to agents through surplus lines brokers.
American Alternative Insurance Company (AAIC)—available in all 50 states through www.PersonalUmbrella.com. In 2010, American Alternative assumed the PersonalUmbrella.com book of business from Navigators. One of the great strengths of this program is that it can cover just about any entity as a co-named insured including partnerships, corporations, LLCs, trustees, and trusts, etc. The downside of being so comprehensive is that AAIC has had to make most of the coverages "following form," making this contract mostly a straight excess rather than a true umbrella. It is a great choice, however, if you need to cover multiple individuals and/or entities under one contract and don't have other liability exposures not covered by underlying policies.
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.
All but Auto-Owners can write risks with multiple tickets and accidents.
All but Auto-Owners offer optional lower required underlying liability limits.
All but RLI offer up to $10 million limits. RLI's maximum is $5 million.
RLI, USLI, and American Alternative have excess uninsured and underinsured motorist coverage available. (Auto-Owners offers it only in some states where it's required.)
All four companies have an A.M. Best rating of A+ or A++
All but RLI offer worldwide coverage. RLI limits its worldwide coverage to lawsuits brought in the United States or Canada. (Not a good umbrella choice for someone who travels abroad.)
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.
Gap # (1-10)
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.
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.
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.
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.
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.
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.
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.
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.
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.
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