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January 25, 2013

Selling Umbrella Coverage

2 min read

Topic: Insurance Sales Insurance Agency Management Insurance Agency Growth Strategies

By Kelly McLemore – Umbrella Coverage Expert

While it’s a common misconception that umbrella coverage is only necessary for the wealthy, nothing could be further from the truth. There is no minimum wage requirement in a lawsuit, and the average insured's primary policy limits are often far from adequate in the event of a catastrophic loss.

Explaining Umbrella Policies to Prospects

Many insureds are misinformed as to how an umbrella policy works, so it’s our job as agents to advise them.

Umbrella coverage protects both personal assets and future earnings of covered individuals. Coverage becomes effective once the primary policy limits have been exhausted. In addition, the umbrella policy can often provide excess coverage with a standard self-insured retention limit of only $250-500 for losses not covered by underlying policies.

Why Would a Prospect Need Umbrella Coverage?

On average, 75% of umbrella claims are a result of an automobile accident.

For example, here’s an account of a recent incident that ended in tragedy:

A teenage girl covered by her parents’ automobile insurance policy was traveling alone on a rural highway. She moved into a turning lane with the intent of making a right hand turn onto a side street.

After realizing it wasn’t the correct street, she moved back into the straight lane, colliding with another vehicle that had attempted a turn in front of her. The elderly driver of the other vehicle was pronounced dead at the scene.

While an investigation is on-going, should the insured driver be found liable for the accident, a string of legal suits could ensue. It’s yet to be determined if there was conscious pain and suffering; if so, Arkansas law allows for both a survival action and wrongful death action.

Claims can be made for loss of financial support by the surviving spouse, as well as the children if support was being provided. Claims can also be made for grief, loss of society, services, and companionship by the surviving spouse. In addition, claims can be made by the children for grief and loss of companionship. 

These particular policy limits are $100,000, and reserve on the primary policy has been set at policy limit. Should the insured be sued and damages awarded the claimant’s family, it’s likely they will far exceed this coverage.

All assets of the teenager’s parents, as well as their subsequent earnings, and possibly hers as well, may be subject to garnishment in the future as a result of this incident. The average umbrella policy costs less than $500 and would have provided at least $1,000,000 in additional coverage to this family. 

Quoting Umbrella Coverage is a Good Practice

As an agent, it is good practice to quote an umbrella policy with every home and automobile policy you write, both at the time of the new business and at renewal. Not only are you practicing due diligence for your insured, but you’re also protecting your agency from a possible E&O suit in the event of such a catastrophic loss. Check with your individual carriers to make sure you know their umbrella and excess policy options so you can recommend umbrella coverage for every qualifying insured in your agency.