WHAT IS AN UMBRELLA INSURANCE POLICY?

 As an insurance professional, our clients may ask if they need any other insurance policies.  Most often, the answer is yes.  Not because we necessarily want to sell the client more insurance but because we see a possible “hole” in the coverage that may exist. Most people who consider themselves middle-class citizens need an umbrella policy.  This is because the cost of housing has inflated and the cost of replacing automobiles has risen dramatically.

So, what is an Umbrella policy?  An Umbrella policy is one that covers losses over and above your basic policies, such as your homeowners, auto insurance, etc.  We can describe this best by giving you an example.

Mr. Smith is married and has three children.  He has a homeowner’s policy for his home that is worth $450,000 and has liability insurance for $500,000 in coverage.  His automobile insurance policy has coverage of $250,000/$500,000 for liability and $250,000 for property damage.  The limits on these two policies are higher than the average person carries, but because of the value of Mr. Smith’s home and the fact that he has three teenage children driving, his agent and he have discussed that his limits should be higher than the average individual.

One night during Mardi Gras season, Johnny, his 17-year-old son, goes out and drives while under the influence and hits another vehicle and seriously injures four people in the adverse vehicle.  All the passengers in the adverse vehicle end up in the hospital and remain there for a week to ten days.  Johnny has been deemed at fault and was arrested for DUI.  The hospital bills for the adverse passengers totaled 1 million dollars.  Mr. Smith’s auto policy will only pay up to $500,000 for all medical bills.  The remaining $500,000 will be charged directly to Mr. Smith as he is responsible for the overage not paid for by the auto carrier. 

However, Mr. Smith’s insurance agent recognized that he was vulnerable to this kind of issue.  So, he made Mr. Smith take out an Umbrella policy that will pay over and above his auto policy and homeowners liability coverage in the event of a situation like that described above.  When the accident occurred, and the agent realized the extent of the injuries, she contacted the Umbrella carrier and notified them there might be a claim filed on their policy.  After the Umbrella carrier is provided with a Notice of Potential Loss, Mr. Smith can begin to send copies of all the invoices and reports related to the accident. Since the bills amounted to $1,000,000 and the auto carrier spent $500,000 and the Umbrella carrier spent $500,000, there is still $500,000 left to cover any additional costs for this accident.  There may be lawsuits filed and legal costs may incur as a result.  In this instance, Mr. Smith will have left the additional $500,000 left to cover these expenses.  However, it must be noted that anything over that $500,000 will have to be paid for by Mr. Smith.

So, what occurred here?  Without the Umbrella policy, Mr. Smith would have been responsible for the $500,000 in medical bills and anything over that amount would bedecided in the courts.  His assets could be at risk and possibly seized to cover  the remainder of the accident costs.  Without the Umbrella policy, Mr. Smith could have been looking at a significant decrease to his net worth. 

An Umbrella policy will cost anywhere between $350 to approximately $2000 depending on the worth of your assets.  The premium is calculated based on the number of assets you have, the type of assets, and the value of those assets.  The more “toys” a family has, the more expensive the policy becomes.  Also, swimming pools, Four Wheelers, ski jets, boats, etc. will make the price inflate because there is more likelihood of someone getting injured on these types of assets. 

One other important aspect of an Umbrella policy is that you must have an underlying policy in order for an Umbrella policy to be effective for that asset.  For example, if you have a ski jet that has no individual policy, it will not be covered by the Umbrella policy.  Upon completing applications for an Umbrella policy, the agent must show proof of coverage for every asset listed on the application.  If there is no primary coverage, then there can be no Umbrella coverage.  Any good agent should recognize and advise their client when they feel that a client has assets that should be protected over and above their primary policies.  If your agent has not suggested this, you may want to inquire about it or call another agent that should take an interest in this coverage. 

Above all, independent insurance agents provide their clients with peace of mind. You can know that your agent will do the work to find you the best policies that not only fit your needs but also save you money. Mel Leveque, with Apron Agencies, will put your interests first and help you feel confident in the protection you choose for your home, business, and family. “Like momma in the kitchen, we got you covered.” Call (504) 416-0237 or visit us online at apronagencies.com to learn more!