Jack Hungelmann, the author of Insurance for Dummies, has had an insurance career spanning over 30 years. With experience and training as an agent, consultant, teacher, author, claims adjuster, and reinsurance broker, Jack has unique knowledge of insurance. Currently, he runs his own risk management and insurance business from the Corporate 4 Insurance Agency in Edina MN.
Jack recently participated in a LoveToKnow.com interview and took time to answer a few questions about umbrella insurance.
What is umbrella insurance?
An umbrella insurance policy provides additional liability coverage over and above coverage you carry on your personal insurance policies covering cars, homes, boats come etc.. Most of these basic policies only provide lawsuit coverage of $300,000 or $500,000 per accident. Yet, if you injure someone seriously, you can blow those limits just in medical bills and/or lost wages. If you get a judgment against you for more than your coverage, you will end up paying any excess amount out of your assets and/or future income. An umbrella policy has three major benefits: $1 million or more of additional liability coverage over and above your primary coverage, additional coverage for defense costs, and coverage for many lawsuits that are not covered by primary auto or homeowners insurance (i.e. renting cars abroad, serving on nonprofit boards of directors, etc.)
Who needs an umbrella insurance policy?
Because it is so easy to cause an injury serious enough where you're sued for more than your basic coverage limits, I believe everyone needs one who either has current significant assets or income, anyone with good future income potential (i.e. law students, medical students), or anyone [Jack Hungelmann] that stands to inherit a future sizable estate. In short, I recommend that everyone of America's middle class or above should have an umbrella policy of at least $1 million. (Umbrella policies are commonly available in million-dollar increments from $1000000-$10000000.)
Are premiums for an umbrella insurance policy expensive?
A one million-dollar umbrella policy premiums ranges from $150 per year to $250 per year. Each additional million dollars of coverage is about $75 per year. I consider an umbrella policy to be the best buy in the insurance business by far!
How can one determine how much coverage they need?
Here is my rule of thumb: Buy at least $1 million of coverage. If uncertain, buy $1 million more in coverage than you think you will need.
What kind of questions will agent ask before selling consumers an umbrella insurance policy?
An agent selling an umbrella policy needs to make certain that the underlying automobile, home, boat, recreational vehicle, etc. liability limits meet certain minimum requirements -- typically $300,000 or $500,000 per claim. If you carry only $100,000 per claim or less, you will need to pay something extra -- typically only about $50 a year -- to increase your basic liability policy coverages to the minimum required for the umbrella. If you don't do that change, you probably will be responsible for paying out your own pocket any coverage shortfall .
Can you be turned down for coverage?
Yes, you can be turned down for coverage. Just like any other liability policy that you purchase, you can be turned down for driving record, condition of the premises of your residence (diving boards, trampolines, etc.). If you are turned down, there are a few high-risk umbrella insurance companies that for a few hundred dollars extra per year will insure you.
Are there any specific policy features consumers should look for when shopping for coverage?
Yes, you want an umbrella policy that covers as much of your personal life activities as possible. Especially those activities that are not covered by your basic insurance policies. Essentially, you want an umbrella liability policy with the fewest exclusions. Befoe you buy, I suggest that you request a sample policy and read through the exclusions yourself. Make sure that there are not any activities in your life that won't be covered under the umbrella policy. If you find an excluded activity, ask the agent if they represent another umbrella insurance company that will cover this excluded activity.
Is it better to purchase umbrella insurance as a rider or as a stand-alone policy?
It really doesn't matter.
Do you have any additional tips for consumers who are looking to obtain umbrella coverage?
Make sure that your insurance company is considered very financially sound (rated A+ or A++ by the A.M. Best company -- go to their web site www.ambest.com). Buy $1 million more coverage than you think you will need. Keep your umbrella policy with the same insurance agent and if possible the same insurance company as your other policies for auto , home etc.. (This greatly reduces your chance of having a coverage gap between the basic policies and the umbrella policy.)
For more information on umbrella insurance, pick up a copy of Jack Hungelmann's book, Insurance for Dummies. There are two entire chapters devoted to the subject.