Welcome to the ABCs of Insurance Claims. Over the next few months, Sherri Walker, Sentinel’s Director of Claims will address an aspect of claims handling for every letter of the alphabet to help provide a better understanding of the claims process.
Things That Make You Say "UM"...
At one point in my life, before I fell into the wonderful world of Insurance, if someone had asked me about an Umbrella, I would have told them it’s what Mary Poppins used to fly. Had they asked me what UM was, I would have stated where The Rock went to college. In insurance, these phrases have much different meanings. In fact, these two coverages are even on the opposite ends of the spectrum from each other, however, each is rooted at the base to protect you. Let’s dive into why you want to make sure your policy says “UM”.
Uninsured Motorist/Under Insured Motorist Coverages
UM stands for Uninsured Motorist coverage, and often also includes UIM, which is Under Insured Motorist. These coverages protect you, as the owner or driver of a vehicle, if you are involved in an accident where the at fault party either does not have insurance coverage or does not have enough coverage to pay for the value of your loss.
Most states have laws requiring that drivers carry a minimum limit of liability coverage. Even so, there is an alarming number of drivers who do not maintain their coverage. Even for drivers who do, depending on the state, that limit may not be enough to cover the expense that is incurred in a loss.
For example, Florida only requires drivers to carry $10,000 per person up to a $20,000 per accident limit for injuries. With the rising costs of healthcare, $10,000 does not go very far, especially considering the average costs associated with being transported by EMS and seen in the emergency room run around $4400, and the average inpatient admittance runs a whopping $57,000. This means that you could be left holding all or some of the bill if the at fault driver is Uninsured or Under Insured. Enter your UM/UIM coverages, which stand in the place of the at fault parties nonexistent or inadequate coverage.
A couple things to note: Your UM and UIM coverages are usually granted at the same amount as your own liability coverage, so if you are only carrying minimum limits on your own policy, you still may not be fully covered under these exposures. Your UIM coverage only covers the difference between your limits and the at fault party’s limits.
For example, if you carry $100,000 of injury coverage and the at fault party carries $30,000, then your UIM value is basically the $70,000 difference. Additionally, state laws vary but there are states in which you must be able to identify the at fault vehicle or driver to apply for Uninsured Property Damage coverage to apply, which means that a hit and run may or may not qualify for Uninsured Motorists coverage to react to your vehicle damages, depending on your location.
The biggest difference in these two coverage lines is who receives the claim payments. UM/UIM coverage makes payments to you, the first-party. The Umbrella coverage pays a third-party who you are legally liable to for damages incurred. Let’s dig deeper into Umbrella next.
Umbrella Liability Coverage
Umbrella coverage provides an additional layer of coverage over your other liability coverages. It stretches wide enough to cover all the underlying liability coverages that you would typically carry – such as Auto Liability and Homeowners Liability or General Liability for a business.
Umbrella policies usually begin at $1 million and go up incrementally. As such, they typically require higher limits on the underlying policies to offset the amount of exposure that exists. Umbrella policies will typically be excess over named underlying policies and may occasionally offer what is called a “drop-down coverage” in which they provide coverage for exposures that are not covered or excluded on the primary policy.
You may be asking yourself why you would want to pay additional premium for a coverage that you are not going to be the one to financially benefit from claims payments on? The truth is that if you have financial reserves, both liquid and fixed, then those assets can be attacked in litigation. We are in an era where nuclear verdicts abound and continue to increase. There has been approximately 27.5% increase in verdict awards from 2010 to 2019, and many have begun to reach the BILLION, yes with a “B” point versus the millions. Consider this: if a verdict is rendered against you for more than your primary policy limits, in absence of an Umbrella, you may be required to pay the difference, even if it means that you have to liquidate assets – bank accounts, non-primary homes and trust funds included; P.S. Mom and Dad, that college fund you set up for your little ones is considered attackable as well.
Safeguarding Your Success
Here at Sentinel, we understand the risks that you face without adequate coverages. We never want to see our customers caught out in the rain, so if you need an Umbrella, or an in-depth review of your UM coverages, our dedicated Sentinel Claims Team is ready to assist. It’s all a part of Safeguarding Your Success.