Open the umbrella

Don't let your clients leave home—or stay home—without this vital protection

By Elisabeth Boone, CPCU

On a rainy day, people often leave the umbrella behind and just make a mad dash for the car, train, house, office, or store. No one ever melted in the rain, and why bother with an umbrella that you're probably going to lose anyway?

That logic works fine when all that's at risk is a wet head. When an individual's or family's assets, lifestyle, and goals are on the line, however, the risks of going without an umbrella become markedly less tolerable.

In mere seconds, everything a family has worked for and dreamed of can be up for grabs. A fender bender in which the driver of the other vehicle suffers a fatal heart attack … a joke casually tossed off at a party that becomes a lawsuit for slander … a tipsy guest who falls off a motorboat and sustains brain damage from nearly drowning … these and countless other incidents can cause an individual or family to lose everything and mortgage their future to pay damage awards and legal bills.

The good news is that personal umbrella liability insurance is both available and affordable. The bad news is that, even when agents and brokers recommend the coverage to their clients and prospects, not everyone chooses to buy it.

Many people assume that their auto, homeowners, and personal watercraft policies provide adequate coverage for any event that could give rise to a claim.

Young people, even those who are high earners with significant assets, may give little thought to what they're risking every time they drive a car, host a party, or take friends out on their boat. Some young people have never even heard of umbrella insurance and may be inclined to pass on it even when their agent offers it.

Retirees and people who rent rather than own a home or who don't own or drive a vehicle may see themselves as having little or no exposure to liability risks.

Whether they are young, middle-aged, or older, most Americans tend to think of themselves as ordinary folks who are unlikely targets for the kinds of multi-million dollar lawsuits that seem to be a common occurrence among the rich and famous, or infamous.

The agent's role

As an agent or broker, you play a vital role in ensuring that your clients understand the risks they face and grasp the necessity for umbrella coverage with appropriate limits. Your carriers can provide educational materials and checklists, and you may want to create your own list of issues to discuss with your clients.

Is the insured a business owner or partner? Does he or she serve as an outside director on one or more boards of for-profit or nonprofit entities? Does the insured have employees or household help who are allowed to drive his or her vehicles? Does the residence have a swimming pool? Does the insured participate in sports? Have college-age kids who live in off-campus apartments paid for by the insured and/or drive vehicles owned by the insured?

As virtually every agent knows, personal umbrella insurance is both available and affordable, and it's routinely offered by standard carriers that write auto, homeowners, and other personal lines coverages. Many clients opt for a $1 million umbrella policy, but insureds with high incomes and substantial assets need limits of $2 million, $5 million, $10 million, or more. It may be necessary to increase limits on a client's underlying policies to coordinate with the umbrella coverage. Increasing the limits for uninsured and underinsured motorists coverage in an auto policy will allow the insured to obtain higher umbrella limits.

Stand-alone personal umbrella coverage is available from a wide range of wholesale and specialty intermediaries and insurers that are listed in The Insurance Marketplace, the annual specialty insurance directory published by The Rough Notes Company. To find a market, you can go to www.insurancemarketplace.com. Under the heading Search for Companies by Category and State, select a state and scroll down to Umbrella Liability—Personal.

One such market is PersonalUmbrella.com Insurance Services (see "Above All, Personal Umbrellas Offer Real Protection" in the April 2012 issue of Rough Notes magazine and "Must-Have Coverage" in the March 2010 issue). The facility places coverage with an A+/XV admitted carrier and can provide limits between $1 million and $10 million for standard risks. PersonalUmbrella.com distributes its products exclusively through independent agents and is active in 45 states. The facility pays a commission of 15% on new business and 10% for renewals.

Protect your clients—and yourself

To ensure that your clients' assets, lifestyle, and goals are well protected in the event of a claim or legal action, the best practice is to recommend umbrella coverage to every personal lines client and prospect, no matter their age, occupation, assets, or income. Drawing on real-life examples of what can happen to people who lack umbrella coverage, you can tell a compelling story that will open your client's eyes to the real risks he or she faces every day. Having created this vital awareness, you are perfectly positioned to deliver the solution: an affordable umbrella policy with limits sufficient to protect the client if the unexpected happens.

Even after you have given concrete examples of actual cases and explained the workings of personal umbrella coverage, some clients will decline to buy it. To protect yourself against an errors and omissions claim down the road, you may want to ask the client to sign a document attesting that he or she has been advised to purchase an umbrella policy and has declined to do so.

Each annual coverage review gives you the opportunity to discuss personal umbrella insurance with your client. For clients who already have the coverage, you can ask questions about changes in income, assets, properties bought or sold, board memberships, college-age children, and other issues that may point to the need for increased umbrella limits.

For clients who previously declined to purchase umbrella coverage, the annual review is the ideal time to reintroduce the subject, again drawing on news reports of people in circumstances similar to your client's who experienced a loss and were either happy that they had umbrella coverage in place or devastated to find out that they didn't.

The bottom line: Don't let your clients leave home—or stay home—without this vital protection.