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The New York Times
March 18, 2008
Umbrella Coverage for Preventing Your Ruin
By JOSEPH B. TREASTER
HERE'S the nightmare: Your car skids. You crash into a Mercedes with a
highly paid business executive at the wheel. He's hurt so badly he cannot
return to work. A jury awards him millions of dollars and you have to pay
it.
You're wiped out financially. The court takes your savings, goes after your
home and, for decades, requires you to give up a part of your salary.
For some people such a nightmare could never happen. They have an extra
insurance policy, known as umbrella or excess liability coverage, which
takes care of their liability for the lawsuits and medical bills of the auto
accident victim -- or of the teenage guest who dives into the shallow end of
the swimming pool or the deliveryman who trips on the front steps.
But many people with major assets either do not buy the extra coverage or do
not buy enough. Some do not know about umbrella coverage, which also pays
for lawyers and other legal expenses. Others have heard of it but do not
understand it. Still others decide that they do not want to pay for it, even
though the cost is usually a fraction of the price of a typical package of
home and auto insurance.
"This is a neglected area," said Mark Schussel, a spokesman for the Chubb
Group of Insurance Companies, which caters to affluent home and auto owners.
"Some people have some coverage. But they haven't changed the amount in
years. Some people have a $1 million figure in their heads, and it just
doesn't make sense anymore."
Charlotte Edmonston has been an insurance agent for more than 30 years. She
works with wealthy clients in Baton Rouge, La., and oversees agents in 29
cities nationwide for the personal insurance unit of Arthur J. Gallagher &
Company, a big insurance broker with headquarters near Chicago.
Her first question for new customers is whether they have umbrella coverage.
Most of them already do. But "90 percent of them are underinsured," she
said. "Usually they were sold too little from the get-go, and their assets
have grown and they never revisited the issue."
For Jeff Cox, an owner of the third-generation insurance agency of Lloyd
Bedford Cox in Bedford Hills, N.Y., and Greenwich, Conn., "the discussion
about umbrella coverage usually starts at $5 million." But he can provide up
to $100 million in coverage.
Umbrella and excess coverage are extensions of home and auto insurance.
Banks make people buy home insurance to get mortgages, and states require
drivers to buy auto insurance. But no one mandates buying a policy that
could turn out to be the most important part of your insurance package.
As a result, only 15 percent to 20 percent of clients at the Wall Street
insurance agency of Campbell Solberg Associates buy umbrella coverage, said
Rick Wiltshire, an executive at the firm. Instead, they stick with the
$100,000, $300,000 or, in some cases, $500,000 in liability coverage that
comes standard with the most widely sold home-insurance policies.
"You never think it's going to happen to you," said Rick Blank, an agent in
White Plains, N.Y., with the Preferred Services Group. "Personal injury
lawyers are making money by suing people. If you don't have enough insurance
you become personally liable."
Some insurance companies that cater to the wealthy say that as many as half
of their customers buy umbrella coverage. But State Farm, the biggest home
insurer in the country, with a clientele of mainly middle- and lower-income
homeowners, says about 12 percent of its policyholders buy umbrella
coverage.
Buying such coverage usually does not greatly increase the overall cost of
home and auto insurance. For example, in Louisiana, insurance on a $1
million home well away from the coast might run $4,500 a year, Ms.
Edmonston, the Baton Rouge agent, said. Two cars could raise the cost of the
package to $7,500. And $5 million in umbrella coverage might cost about $600
more, or about 8 percent of the total. In New York, agents say, $5 million
in coverage might cost about the same.
Ms. Edmonston consolidated home and auto coverage for Ann Brown Singleton, a
stockbroker and financial adviser in Baton Rouge, after her husband died and
she married Andrew Jackson Singleton, a sales manager for several national
companies. Together, they owned several houses, three vintage cars, jewelry
and art.
"I had a $1 million umbrella, which I thought would certainly satisfy
everything," Ms. Singleton said. "When Charlotte Edmonston got through with
her analysis she said, 'Whoa, you need a $5 million umbrella.' Whether
lawsuits are valid or not, you wind up having to defend yourself against
them, and you never know how high the judgment is going to go. I find that
frightening."
Philip J. Hirschkop, a lawyer just outside Washington, said he had a client
without an umbrella policy who had only the $100,000 coverage that came
standard with his home and auto insurance policy. He was sued for much more
over an auto accident and was in danger of "losing everything he owns."
Around the country, at companies dealing with rich clients, the first
million in coverage is usually the most expensive, at perhaps $150 to $300
annually, said Jeanne M. Salvatore, a specialist in home insurance at the
Insurance Information Institute. Each additional million in coverage, she
said, could cost around $100 to $125 annually. The rates per million decline
as coverage increases. But at $10 million in coverage, the rate jumps
because few customers buy that much, meaning insurers can spread their risk
over only a relatively small group of customers.
The situation is often the reverse for the many insurers who specialize in
middle- and lower-income clients. Often their rates shoot up after the first
million in umbrella coverage because they have only a small group of buyers
of umbrella policies larger than $1 million. A smaller pool of customers
creates more risk per dollar of premium for an insurer, so the insurer
charges more for the coverage.
One homeowner said that for a $3 million umbrella policy from a
middle-income insurer, the second and third million in coverage cost him 3.5
times the rate for the first million of coverage.
Thankfully, accidents with elephantine lawsuits are not everyday events.
When they do occur, however, the results can be devastating.
One of Mr. Cox's clients crashed into the rear of a car on a slick highway.
A woman and a child were critically injured. After two years of litigation,
his client settled the lawsuit for more than $5 million. The client had $15
million in umbrella coverage. The policy paid for the settlement and all
legal costs. "Without the umbrella," Mr. Cox said, "they would have been
completely wiped out."
http://www.nytimes.com/2008/03/18/business/businessspecial3/18insure.html
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Papadillos wrote:
For some people such a nightmare could never happen. They have an extra
insurance policy, known as umbrella or excess liability coverage, which
takes care of their liability for the lawsuits and medical bills of the auto
accident victim -- or of the teenage guest who dives into the shallow end of
the swimming pool or the deliveryman who trips on the front steps.
Good article. I think the insurance companies discourage umbrella
coverage, and make it hard to acquire.
When I bought my umbrella policy, I had to wait a few months because
they wouldn't issue it because I had had a parking lot accident less
than three years earlier. No injuries, no damage to my vehicle, slight
damage to the other vehicle, maybe $1500 worth of body work, plus it was
the other driver's fault.
One other thing the NYT article didn't mention is that in order to get
an umbrella policy, most insurance companies require that all your other
property and liability policies be issued by them. So you need your
homeowners or renters insurance, any insurance for rental properties,
and your auto insurance issued by the same company (as well as other
polices for boats, etc.).
That article did make me realize that my umbrella coverage is probably
too low.
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In article <47e7c4e1$0$36392$742ec2ed@news.sonic.net>,
scharf.steven@geemail.com says...
Papadillos wrote:
Good article. I think the insurance companies discourage umbrella
coverage, and make it hard to acquire.
When I bought my umbrella policy, I had to wait a few months because
they wouldn't issue it because I had had a parking lot accident less
than three years earlier. No injuries, no damage to my vehicle, slight
damage to the other vehicle, maybe $1500 worth of body work, plus it was
the other driver's fault.
Preferred-rate umbrella coverage is often very picky, they're making
bets on pretty long odds, $150 premium for $1 million risk. But there
are companies that specialize in higher-risk umbrellas for families with
less than stellar driving records, even DUIs. They do charge a lot more
for the coverage, because their customers are much more likely to use
it.
One other thing the NYT article didn't mention is that in order to get
an umbrella policy, most insurance companies require that all your other
property and liability policies be issued by them. So you need your
homeowners or renters insurance, any insurance for rental properties,
and your auto insurance issued by the same company (as well as other
polices for boats, etc.).
That's true of many multi-line carriers. But there are companies that
will write stand-alone umbrellas. Again, the price is often higher, and
there's a bit of hassle because they'll want to see the coverage limits
of all your underlying policies with different companies.
That article did make me realize that my umbrella coverage is probably
too low.
More people should think of that!
--
josh@phred.org is Joshua Putnam
<http://www.phred.org/~josh/>
Braze your own bicycle frames. See
<http://www.phred.org/~josh/build/build.html>
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