In the article, "Plugging Liability Insurance Gaps with the Personal Umbrella Policy," I introduced many of the additional coverages provided by a good personal umbrella liability insurance policy that are not, as a rule, covered under primary automobile and homeowners insurance policies. In the article "Creating and Using a Personal Umbrella Comparison Form," I showed the process I use to create a comparison spreadsheet on the different personal umbrella policies I represent. "Choosing the Best Umbrella Policy: Case Study" illustrates how, through practical example, the comparison spreadsheet is used. In this article, I share with you the checklist I created to help clients identify which optional umbrella coverages they need to plug liability coverage gaps in underlying policies.
You will find this checklist and full details on each listed coverage in Chapter 16 in the just released second edition of my book, Insurance for Dummies. Here is the checklist.
On the checklist, I list "mandatory coverages" and "optional coverages." Mandatory coverages are those coverages that I think should be included for everyone, such as true worldwide coverage that includes worldwide defense coverage. Another example is coverage for punitive damages, even if your state disallows them. This is because you might cause an accident while traveling in a state that does allow punitive damages. Optional coverages are those exposures that not everyone has, but if you do have that exposure, for you, it's a mandatory coverage need.
On the checklist form, there are three columns. The "Gap Description" is the exposure that is not covered by underlying policies in most cases. The second column, "What Coverage You Need," provides examples that clarify the nature of the gap. The third and final column includes my comments on what to watch out for with each coverage. Here is a brief recap of the process.
Gather all applicable umbrella policies, including mandatory endorsements.
Create an umbrella comparison spreadsheet from the comparative analysis that you have performed. (See the current comparison spreadsheet, which includes the recently updated umbrella policy for Progressive and the addition of my RLI umbrella analysis.)
Create a checklist from the spreadsheet to identify primary insurance coverage gaps.
And finally, match the checklist results against the comparison spreadsheet and select the insurance company or companies that best cover your or your client's underlying liability insurance gaps.
Many insurance companies require proof of all or part of the underlying insurance program before making their umbrella available. Because of that fact, and because uninsured liability claims are potentially financially disastrous, I sometimes find myself needing to start from the top down and pick the best umbrella policy for the client first before trying to place their underlying insurance policies.
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