When or why do you need an insurance umbrella?

Over the years I’ve heard some people say that they think umbrella policies are only for the wealthy. This is not necessarily true. We encourage many of our customers to consider protecting their assets better by having an Excess Personal Liability Policy which is known as an “Umbrella”. Anyone can have an auto accident or some other liability occurrence which may exceed their auto or home liability coverage thus putting their assets at risk. For just a few hundred dollars a year, you can buy $1 Million or more of additional protection thus giving you much greater financial peace of mind.

What is an umbrella policy?

An umbrella policy is actually an Excess Liability policy. The term “Umbrella” is used as it describes the function of this policy: it provides an extra amount of liability coverage that goes OVER your primary automobile liability insurance, homeowners liability insurance, and some other “exposures” you may have such as for a boat.

What does it cost?

The limits come in $1 million increments. A typical $1 million dollar umbrella policy for a family that owns two cars and a home can cost between $200 to $300 a year. The premium is based upon the number of cars you own as well as the number of properties (and any other exposures such as boats). Higher limits will obviously cost more with each additional million dollars of coverage you select. Most of our Umbrella clients have $1 or $2 Million Umbrellas but we do have some who need as high as $20 Million limits in order to properly protect their assets.

Why get one?

As mentioned above, the purpose of an umbrella is to provide you with extra liability protection in case you are sued. You could be sued for your negligence resulting in injuring someone (i.e. being at fault) in an auto accident or if someone should slip and fall at your home or be injured on your property due to your negligence. An Umbrella Policy provides you with at least a million dollars of additional protection over your primary policies. Also, don’t forget that you also will have the legal defense for covered suits provided by your insurance carrier on your primary auto or home insurance policies. With higher limits of protection our clients are better able to sleep at night knowing their assets are well protected. We encourage you to consider an Umbrella as part of your insurance program.

How much liability coverage should I carry?

It depends upon who you injure! That may sound like a callous statement but the fact is, if you hit the “wrong person”, a person who would cost you a fortune in a court case, you quickly realize adequate liability insurance is a must.

Liability insurance, whether it’s for automobile, homeowners, or business insurance, is coverage that protects you if you are sued by an injured party. Lawsuit costs against you by the party you injured can include, not only their lost income, but also their pain and suffering, medical bills, and even loss of consortium (inability of one’s spouse to have normal marital relations).

Here’s an example of what could happen to you. Let’s say you’re involved in an auto accident and you are at fault (i.e. you are liable). Depending upon who you hit, you may find (to your horror) that your insurance limit might be completely inadequate. If the injured person is a young professional, age 30, making $75,000/year presently, you can see that your $100,000 per person/$300,000 per accident liability insurance plan won’t begin to cover just the lost income this person would generate over their lifetime. On top of this, a jury may award a large sum for pain and suffering, whether the person you hit is a high earner or not. Often the way a legal judgment against you is satisfied when your insurance is inadequate is through confiscation of your assets and/or garnishment of your wages.

In my experience, I’ve seen many examples of coverage limits reduced to ridiculously low levels in order to sell a cheap policy. My customers want competitive pricing but not poor coverage, so we protect them by advising them to carry as high a bodily injury liability limit as their insurance budget will allow. Furthermore, I encourage many of them to consider an umbrella liability policy with a $1,000,000 limit, or even higher.

Our insureds have worked hard to achieve success in their life and higher liability limits protect their assets, providing them well deserved peace-of-mind. Let’s face it, insurance is all about having peace-of-mind.

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Is it OK to let other people drive my car?

In a word, no; but let me expand upon that. While we all would like to be helpful and generous to family, and friends, by allowing them to occasionally use our cars, the fact of the matter is the law may not reward our generosity. If you cause an accident with your vehicle, you understand that if someone is injured, that you will likely be sued for causing their injury.

Conversely, if someone hits you and hurts you in an automobile accident, you would very likely sue them for your injuries and suffering. When you allow a friend or family member to drive your car, you put yourself at great financial risk, since responsibility of ownership of your vehicle follows YOU. You as the owner of the car, and your friend as the driver, could each possibly be sued separately.

Some of my clients have said they feel pressure to loan their vehicle to a family member or friend, and it is difficult for them to say no. At times I have told my clients to have the friend or family member who wishes to borrow their car, to call me and I have explained to them why their request is not reasonable.

You’ve worked too hard accumulating assets to put them at such unnecessary risk. If you don’t yet have any savings or financial assets, help protect your future earnings by limiting your risk now. Saying no now may protect you in the future in ways you may never know!

It is a bitter pill to put everything you’ve worked for at risk for the actions of another. We always advise our clients to avoid loaning their vehicle, unless it is absolutely necessary. Advice like this is one of the many advantages of having an agent.

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Why doesn’t my auto insurance premium go down over time, even though my car is getting older?

As cars get older their value depreciates (goes down). The vast majority of auto claims (physical damage) involve repair, not a total loss of the car. The cost of parts, and labor, to repair an older vehicle can be as much, or more in some cases, than the cost to repair a new car.

When you couple this with the fact that other auto coverage, such as Bodily Injury and Property Damage Liability, Personal Injury Protection (“No Fault”), Uninsured Motorists, and Medical Payments, cost virtually the same premium, whether you drive a newer or older vehicle, you can see that auto premiums will rarely go down over time.

The vast majority of auto policies will pay to repair your vehicle up to the actual cash value (depreciated value) of your car. For example, if you have a car that is worth $1,500 and the cost to repair it is $2,000, then the insurance company will “total” your car, i.e. they will pay you the cash value ($1,500) and not the ($2,000) it takes to repair your car. At that point, you would have to go out and either buy a new car, or keep your car and pay the difference ($500) out of pocket to repair your damaged vehicle.

A money saving tip we often recommend for our clients, is to consider dropping physical damage coverage on their vehicle, once it reaches about 10 years of age.

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When I rent a car, do I need by buy the extra coverage offered by the rental car company?

In most cases yes. This is a somewhat complicated issue but I’ll attempt to clarify why using my own insurance as an example.

Let’s start by understanding that most rental car company contracts are not the same. As a matter of fact, rental contracts can vary by location even with the same company! When I rent a car, my car insurance (with some exceptions) treats the rental car like it is one of my cars, in other words my policy will provide physical damage coverage to the rental car less my deductible just as if it was my own, that’s because my auto insurance policy has “full coverage”, meaning I carry not only Liability Insurance (for damage I may cause to other people or their property) but also physical damage (Comprehensive & Collision) coverage for my cars.

I also have a credit card which provides physical damage coverage for cars that I rent. Reading their literature I could infer I don’t need either the rental car company “insurance” or my own auto policy to pay for damage to my rental car.

Between my own Auto Policy and my credit card you would think I’m all set and don’t have to buy any of the “insurance” the rental car company offers at the time of rental, right?


It turns out that renting a car can obligate you to some pretty serious financial penalties which are not covered by your auto policy or your credit card. Rental car companies also are not required to repair a damaged car in a timely manner.

Why does this matter to you? Two reasons:

1. That rental car could sit in their lot for a month before repairs even commence but you’re still on vacation or on business and you still need a rental car. Meanwhile your rental car insurance typically only lasts 30 days!

2. Remember you will be charged daily for the lost rental income every day that car sits unrepaired and THAT is typically not covered by your auto policy or your credit card. As you can see, this adds up quickly!

All of these potential problems can be avoided by buying the “Collision Damage Deductible Waiver” (could they make it sound any more complicated?) from the rental car company. This typically costs anywhere from $12 to $22 a day.

Yeah, yeah, I know it’s more cost but you will be untouchable if something happens to your rental car. With this extra coverage you can pull up to the rental car location with a damaged car, toss them the keys, and get on the van to the airport to catch your plane home with almost no delay. No muss, no fuss! Doesn’t that sound like a good deal?

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Does it matter if I hire a contractor who does not have general liability or workers compensation coverage?

It makes a big difference to hire a contractor with the proper insurance. I am aware of a number of instances where a contractor would advertise “licensed and insured” to the public when they in fact did not possess the proper contracting license or the proper Commercial Liability Insurance the public was being led to believe. I know of a couple of cases where the contractors drivers licenses was their justification for the “licensed” claim and their basic auto insurance justified their “insured” claim.

The problem is, neither justification will help the home or business owner who hires these people when a problem arises due to faulty work or negligence.

Contractors who responsibly run their businesses and carry full insurance may cost more but they are doing the public a favor by providing protection when a claim happens. Some of these claims can involve huge sums of money.

We encourage everyone to hire properly licensed contracting professionals who have Commercial General Liability Insurance and (if necessary) Workers Compensation Insurance.

We have seen many cases where a friend or neighbor hired a “handyman” or a lawn service which was not properly insured. Our friend paid dearly when an accident or mistake happened and there was no coverage in effect to help the injured party.

The possibilities for loss caused by contractor negligence or malpractice are endless and they include damage to your home or building by the contractor or worse, injury to you or someone else by the contractor in the course of their work. I recall one case about 10 years ago where an uninsured “handyman” gave the low bid to construct some kitchen cabinets for a friend. A few years after installation, the cabinets fell off of the wall in one large crash injuring two neighbors at the house for a party. There was no coverage available from the handyman and it ended up costing the homeowner dearly for the injuries sustained by their (now former) friends.

Cheap prices are a seductive lure to uninsured contractors but try to remember that you can pay a bit more up front for a true professional or you can pay a lot more later if a claim occurs due to negligence by an uninsured contractor.

Go the extra mile when hiring a contractor by asking to see their “Certificate of Insurance” showing their insurance companies, coverages, and effective dates of coverage. Also ask to be added to their Commercial General Liability insurance as an “Additional Insured”. This “ounce of protection” on your part up front may save you paying a “pound of cure” later!

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Does my credit rating affect my auto insurance premium?

Absolutely! Your credit rating is part of your “Credit Score” which is the greatest factor in determining how much you’ll pay for auto insurance. All of us have seen and heard many lighthearted and entertaining insurance commercials on TV, radio, online and on the web claiming they will save you a lot of money on your car insurance.

The first thing to know is any auto quote you receive online, over the phone, or in the mail is just an indication of what you might pay. That quote is not binding, meaning the premium figure you receive is probably not the final premium you will pay unless every aspect of your life, including your credit and claims history, is stellar.

Until the insurance company runs all of your reports, including your “credit score” and your “CLUE” report, which references your insurance claim history, your quote is usually just a best-case possibility for auto insurance. I personally am not a fan of those “teaser” premiums in ads as I think they often lead to disappointment for the insured.

Why do the final premiums often change from what you were quoted? While many insurance companies act lighthearted in their ads, the business of insurance is a serious business. The insurance industry is facing shrinking margins, so insurance companies have to be very careful to price their product properly. Only the Federal government can print money; everyone else has to make a profit or the lights go out!

The key pricing tool developed by the auto industry over the past 30 or so years is called “credit scoring”. Credit scoring is a complex program which takes into account many variables of your financial life and the resulting “score” is an indicator of how desirable you are as an auto insured. The better your credit score, the more preferred pricing you will receive. And conversely, the worse your credit score, the more you will pay. It’s that simple. Now please understand your credit score is not your credit rating, but your credit rating is a component of your credit score. Clear as mud, right?

What can you do to improve your credit score? One thing I tell my clients is to have no more than two credit cards (any combination of AMEX, Mastercard, Visa) and to get rid of their gas cards, department store cards, and home improvement store cards. Revolving credit lines work against you and your credit score. That means even those attractive “12 months same as cash” offers are not good for your credit picture; they are in fact lines of credit and show up on your credit report as open loans.

When your credit score improves, you become eligible for more preferred pricing on your car insurance and the savings can be huge. We have seen situations in our office where two seemingly similar insureds, with similar ages, demographics, cars, and coverage limits, paid very different premiums, due solely to differences in their credit scores, even though they were insured by the same insurance company!

Ask your insurance agent what he or she recommends you do to help lower your auto insurance premium. Pay as much attention as you can to your credit situation and you could see real savings on the cost of your auto insurance.

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Should I carry flood insurance?

If you live in South Florida, absolutely! There is often confusion about just what flood insurance is and when it is required.

First lets deal with the boring definition of flooding which is, “a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from: A) overflow of inland or tidal waters; B) unusual and rapid accumulation or runoff of surface waters from any source; and C) mud flow. DOES ANYONE SEE POTENTIAL FLOOD INSURANCE PROBLEMS FOR SOUTH FLORIDIANS?!

What the definition above means is that it doesn’t always take a hurricane to cause flood claims here. We can have a series of heavy rain showers causing flooding and flood claims. Those of you living miles inland (especially near canals and lakes) are also vulnerable.

Remember, flood insurance covers against the hazard of rising water. This is different than “water damage” claims covered by a homeowner policy for say, a pipe break in a wall or a toilet tank leak. Those are not considered rising water.

Recall after Hurricane Katrina when there were hundreds of claims against homeowners policies which were denied, because the direct damage to the home was caused by flooding, not wind. People without flood insurance were out of luck. The National Flood Insurance Program (NFIP) is in charge of flood insurance. NFIP makes the rules and sets the rates, not the insurance industry and not the state of Florida.

Flood insurance is usually required if you have a mortgage and are in a higher risk flood zone (one determined more likely to flood by FEMA surveys.) There are numerous different types of flood zones, some being more hazardous than others. Everyone is in a flood zone but not everyone is in a high hazard flood zone. Check with your agent – this is what we do.

What if the bank doesn’t require you to carry flood insurance? We still say to buy the coverage as the premium cost is typically low, often just a few hundred dollars a year.

Finally, don’t wait. The only time you can get immediate flood coverage is for a real estate closing with a mortgage; otherwise there is a 30-day wait. No exceptions.

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