This article may be too technical for most readers to understand. (February 2017) |
Umbrella insurance is a kind of liability insurance. It typically applies when liability exceeds the limits of other policies, although it may also serve as primary insurance for losses not covered by other policies.
When an insured person is liable, the insured's primary insurance policies pay up to their limits, and any additional amount is paid by the umbrella policy (up to the limit of the umbrella policy).
Umbrella insurance is available mainly in the United States.
Excess versus umbrella
editExcess insurance is similar to umbrella insurance in that it pays after an underlying primary policy is exhausted. The critical difference is that excess policies are normally "follow form" policies that conform exactly to the coverage of the underlying policy, except that they add on their own excess limit which is then stacked on top of the primary policy's limit. Umbrella policies tend to provide broader coverage over one or more primary policies, in that they usually lack "follow form" clauses, their definitions of what is covered may be broader than the definitions in the primary policies, and they sometimes lack exclusions used in underlying primary policies. Thus, an umbrella policy may cover certain risks from the first dollar of loss or liability incurred, which were never covered under the primary policies. For those risks that are left uncovered by primary policies but are covered under the umbrella policy, the latter is said to "drop down" to cover them as primary insurance and fill in the gaps in the underlying policies.[1] Hence, the "umbrella" nomenclature is a reference to the broader coverage of the policy.
Commercial
editA commercial umbrella policy may be based on a commercial general liability (CGL) primary policy.
Personal
editPersonal umbrella policies are typically made excess of a person's homeowner's and automobile insurance. Coverage varies by the company, and detailed comparisons can be constructed showing the differences.[2][3] Customers are generally high-net-worth individuals, and in the United States, a trade group called the Council for Insuring Private Clients was formed in 2012 to focus on this market.[4] As of 1995, the largest personal insurer in the United States, State Farm Insurance, reportedly had 1.4 million personal umbrella policyholders in the United States,[5] and in 2008 12% of its customers had umbrella coverage.[6]
Causes of loss
editMost personal umbrella losses are related to auto accidents, with a 2013 analysis finding that 78% of claims and 87% of losses related to autos.[7] In a prior 2000-2005 survey, most of the losses were not covered by the underlying policy ("drop-down"), while in 2013 most were in excess of the underlying.[7]
Examples of liability that an umbrella policy may cover when a homeowner's policy doesn't include:
History
editUmbrella policies began to be sold in 1949 and became popular in the 1960s. Coverage details changed in various ways over the next several decades.[8]
Citations
edit- ^ Powerine Oil Co., Inc. v. Superior Court, 37 Cal. 4th 377, 33 Cal. Rptr. 3d 562, 118 P.3d 589 (2005).
- ^ Hungelmann, Jack (April 2011). "Comparing Stand-Alone Personal Umbrella Policies | IRMI.com". www.irmi.com. Retrieved 2016-01-16.
- ^ Hungelmann, Jack (June 2007). "Personal Umbrella Comparison Form | IRMI.com". www.irmi.com. Retrieved 2016-01-16.
- ^ "New Trade Group to Focus on High-Net-Worth Segment". Retrieved 2016-01-16.
- ^ "Covering All Bases". tribunedigital-chicagotribune. Kiplinger's Magazine. Retrieved 2016-01-16.
- ^ Treaster, Joseph B. (2008-03-18). "Umbrella Coverage for Preventing Your Ruin". The New York Times. ISSN 0362-4331. Retrieved 2016-01-17.
- ^ a b "Personal Umbrella - Severity Perspective From Personal Liability Losses | Gen Re". Gen Re Perspective. Retrieved 2016-01-17.
- ^ "How Umbrella Policies Started—Part 1: Early Liability Coverage | IRMI.com". www.irmi.com. Retrieved 2016-01-17.