"I've never had anyone resist the need for liability umbrella insurance," says Keith Newcomb of Full Life Financial in Nashville. Yet, he says, "I have lots of clients who have never heard of it because the agent didn't bother to quote it. It's one of those coverages that's an afterthought from the P&C agents. I would imagine the reason is that it's a very low premium, which means a very small commission."

Dwayne Aaron, a property-casualty agent with State Farm Insurance in Scottsdale, Ariz., denies this and says small commissions are not the reason fewer policies are sold. Instead, he says, it's more often simple parsimony on the part of the customer who comes in to buy insurance on a tight budget.
"The P&C agent wants to sell it," says Aaron. "They don't get paid for not offering it. [The client has] got an idea in mind what they want to pay. And when you suggest the other coverages they need, it's all well and good that they need additional coverage, but they've already set their minds on what their budget is for insurance and at that point they may not be that receptive to purchasing an additional policy."

He says, however, that when the clients hear it from a planner, they often come scurrying back to the P&C agent now that the idea has been reinforced by a trusted fiduciary.
It sounds like a passive-aggressive way to sell the insurance. But it also underscores an advisor's role as the person who has the potential buyer's ear more than the carrier or the insurance broker. This goes for the rich as well.

"I'm not sure if your high-net-worth client is going to initiate the need for an umbrella," says Patrick Gillotti, vice president at Duble & O'Hearn Inc., a New Haven, Conn.-based insurance broker for high-net-worth individuals. "I think with their lifestyles and the responsibilities they have to their business and family, I'm not sure this is something they're thinking about. I think the initiation of an umbrella should come from a center of influence ... an advisor, etc., etc."

Dropping Down

Gillotti's colleague Greg Wheeler, president and owner of Duble & O'Hearn Inc., says that, beyond offering people higher levels of coverage, an umbrella policy can be helpful to broaden the coverage beyond what the underlying liability insurance might take care of. It depends on each policy, but the more aggressive players like Chubb, Fireman's Fund and AIG, he says, are coming out with more sophisticated contracts that can be more extensive in the protection they provide.

"For one, when you have a personal umbrella of a certain magnitude, you may have broader territorial definitions," Wheeler says. "For example, you may have a primary auto liability policy in the United States that doesn't follow you overseas. And yet the use of a hired or non-owned car overseas, or what have you, may be covered by your personal umbrella. It varies from one insurance company to another."

He also mentions umbrella contracts for things like sexual harassment and what he calls personal injury torts-discrimination, libel and slander. "There may be broader coverage in these areas with the personal umbrella in our experience," he says. Furthermore, depending on the policy, an umbrella may help provide a broader definition of the name who is insured-meaning that resident relatives and people within your client's care can also be covered. It all depends on the policy.

Mind The Gap

Knowing how much insurance a person needs often means that as an advisor, you have to do an extensive fishing expedition for information.
The way the policy usually works is that the customer must have purchased the maximum amount of primary, underlying coverage (which in many cases they don't want to do). Again, this maximum coverage is often $300,000 for auto (though Boak says some companies will go up to $500,000) and $500,000 for homeowners insurance. These maxed-out coverages are necessary not only for defensive purposes but also because they are acting as the deductible on the umbrella; if the gap is not closed, your client might have to buy a whopping amount out of his own pocket to make up the difference.
Boak says that when he is analyzing policies for non-clients, one of the biggest problems is that people find themselves underinsured because they haven't told their advisors about extra homes, extra property-extra whatever-that a grabby plaintiff might eye covetously in a lawsuit.

He uses the example of a vacation home or a junker the client keeps elsewhere, say in Florida, that they don't tell their insurance agent back home about. "And they won't add the condo or the auto onto the excess liability policy because they'll forget about it-or they'll add it on, but [then] they won't have enough liability coverage. Now they have a gap in their coverage."

For example, take a woman who has bought an umbrella policy for a million dollars, but has an auto policy down in Florida that she hasn't told her insurance agent about for a car she uses during vacation. The policy down south gives you $100,000 per person and $300,000 for accident and liability. But the umbrella policy requires you to first get higher limits of $250,000 for the car and $500,000 per accident. Maybe the agent in the customer's main state of residence has not seen the copy of the declaration page. What you have here, Boak says, is a recipe for disaster.