ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, October 21, 1996 TAG: 9610230007
SECTION: MONEY PAGE: 6 EDITION: METRO
SERIES: Updating your insurance
SOURCE: MAG POFF STAFF WRITER
PEOPLE who own their homes or have another major asset to protect are prime candidates for umbrella insurance, according to David DeMarco of Bartlett Insurance Service in Salem.
Umbrella coverage, said Frances Garrett of Chas. Lunsford Sons & Associates in Roanoke, is "a buffer between your assets and bankruptcy."
Umbrella insurance, in short, represents peace of mind in a time of large jury awards in liability cases.
Few insurance agents push the coverage, perhaps because the premiums and, therefore, the commissions are so low. But DeMarco said he always recommends it to his clients if they have something to protect.
A young couple just starting out in a rented apartment probably doesn't need an umbrella policy, he said. But they should buy it when they move into their own house and begin to acquire assets.
An umbrella policy provides additional liability coverage where automobile and homeowner's insurance leave off.
Its purpose, Garrett said, is to protect against a catastrophic claim, lawsuit or judgment. "The umbrella policy covers catastrophic liability losses associated with the home, automobile, watercraft, recreational vehicles and other personal activities," she said.
Umbrella insurance also has a second function, she said. True umbrella policies cover personal injury rather than just bodily injury, damage to property in the case of the insured, or liability assumed in a contract. It also covers the entire family worldwide.
DeMarco recommends that people buy an automobile policy with a liability limit of $300,000 and a like amount of homeowner's (or renter's) insurance. The umbrella policy picks up liability coverage starting at that point.
The umbrella limit, he said, should be two to three times the insured's gross worth. Thus a family with assets of $350,000 should have a $1 million policy, while someone worth $500,000 should buy coverage up to $2 million.
Umbrella policies, he said, are sold in million-dollar increments from $1 million to $5 million. Any policy over that amount, DeMarco said, would have to be purchased from a specialized carrier.
If these amounts seem stratospheric, the premiums are not.
Garrett said the average premium for a family with one home and two cars at $1 million would be $150 annually.
DeMarco estimated the same coverage at $100 to $125 a year. He said it would probably take another $20 to cover a rental dwelling and another $25 for a third car. DeMarco recently wrote a policy for a family that owned five rental units and three cars for a cost of $250.
You would pay half again as much for each million dollars of additional coverage, he said. Thus, if a premium to cover your situation is $100 for $1 million, you would pay $150 for $2 million.
He advised buyers to distinguish between excess coverage and a true umbrella policy.
An excess policy, he said, merely raises the amount of your protection for the same items that your automobile and homeowner's policies cover.
An umbrella policy, he said, adds some additional protections. Personal injury, for instance, is not covered by a homeowner's policy but is covered by an umbrella policy. "The umbrella policy is broader," he said.
Garrett said a good example of how the umbrella works would be a situation in which you are found legally liable for damages to a claimant, but the damages exceed the liability coverages of your automobile or homeowner's policies. This is not a rare situation.
In such a case, Garrett said, you are responsible for paying the difference between the amount of your coverage and the amount of the verdict against you. You could lose your home and other assets.
But if you have a personal umbrella policy, Garrett said, it would pay the amount above the underlying limits after they have been exhausted. You would be protected up to the amount of your umbrella coverage.
Umbrella coverage is available only to families that have insurance on their vehicles and homes (whether rented or owned).
DeMarco said among Virginia clients, umbrella policies are most popular in Northern Virginia, where the cost of a home is high and where jury verdicts in liability cases have traditionally been very large. In Western Virginia, "people don't see the need," he said.
But he said he has found that average insurance settlements have become higher here than in Northern Virginia. And he said the size of verdicts here is rising.
The need for high insurance coverage, DeMarco said, "is a sign of the times."
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