Under the umbrella

QAIt's meant to offer protection beyond the scope or limits of your other insurance policies.

As an example, imagine that you cause a car accident where someone sustains $800,000 of injuries. If your auto insurance covers up to $300,000 of that, an umbrella policy could cover the remaining $500,000. A typical policy might offer up to $10 million in liability protection for your home, car or boat and may cover your legal costs if you're sued.

Fortunately, umbrella policies tend to be relatively inexpensive. Policies vary, so if you're interested, shop around for just what you need.

Q

If a company has an initial public offering and its shares start trading on the stock exchange, do the original owners of the company no longer own it?

— M.Q., St. George, Utah

AWhat's umbrella insurance?

Not exactly. When a company “goes public” via an IPO, it will often sell only a portion of the business to the public.

This is how it might work, in a simplified example: The owners of Stern Bears (ticker: GRRRR) determine, with the guidance of investment banks, that the company is worth $200 million. They decide to sell 25% of it to the public via an IPO to raise money to help it grow faster. They opt to divide the company into 10 million shares initially priced at $20 each, for a total value of $200 million. So 2.5 million shares will be sold to the public, with the original owners keeping 75% of the company, or 7.5 million shares. The IPO will generate about $50 million (2.5 million shares times $20) — less the investment bank's fee, which is often about 7%.