Umbrella excess liability policy

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kenner
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Re: Umbrella excess liability policy

Post by kenner » Sat Apr 26, 2014 12:58 pm

Quasimodo wrote:I don’t claim to know the answer to Pasour’s question, but here are links to some articles with various suggestions:

http://www.nytimes.com/2012/11/03/your- ... wsuit.html

http://www.investopedia.com/articles/re ... dawall.asp

John
John,

Thanks for posting these truly helpful links.

kenner
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Re: Umbrella excess liability policy

Post by kenner » Sat Apr 26, 2014 2:53 pm

placeholder wrote:
kenner wrote:Never before have I encountered anyone who did not want to insure his/her family to the maximum extent feasible.
This is one of those statements that makes little sense as you don't define "maximum extent":

Sometimes insurance companies limit the amount of coverage you can provide to your family. I hope you'd want maximum protection for your family. Call your insurance company and ask them what is the maximum you can purchase.

or "feasible" because most of use could spend tens of thousands on insurance each year if desired.
"Feasible" means what your budget allows.

Sorry, I believed thse concepts were widely understood.
Last edited by kenner on Sat Apr 26, 2014 3:13 pm, edited 1 time in total.

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Drain
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Re: Umbrella excess liability policy

Post by Drain » Sat Apr 26, 2014 3:11 pm

letsgobobby wrote:What point are you trying to make? What answer do you have? What answer do you want?

Sometimes there are no easy answers. Life is like that.
I agree. I'm a little irritated by someone who passes himself off as an expert and tells everyone the topic is simple, yet has no answers himself. I agree that we don't have good ones--maybe due to a shortage of data, and maybe a good answer isn't possible. My objection is to someone pretending he has answers when he doesn't, and frankly doesn't even seem to be aware that he doesn't. For that matter, he seems to reject the notion that there are serious questions to begin with.
Why not throw up a poll and see how much total liability Bogleheads actually carry?
I don't understand how the poll results would help. What's right for one person is not necessarily right for someone else. More important, it's clear from these threads that people aren't making these decisions all that rationally (because we lack a solid, rational basis for making them), so I have no reason to use the results as a starting point for myself.

Bogleheads is usually a darned good place to find insight on matters of personal finance. The fact that no one here can offer much guidance on umbrella or UM/UIM leads me to believe there isn't any anywhere.
Darin

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Nuvoletta
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Re: Umbrella excess liability policy

Post by Nuvoletta » Sat Apr 26, 2014 3:24 pm

Nuvoletta wrote:
Grt2bOutdoors wrote:I'd say most people's umbrella will never come into play. However, when rain clouds appear on a particularly sunny day out of nowhere, it pays to have that umbrella handy. For me to sleep, the minimum I need is $1 million, if my net worth goes up I will revisit that limit - accidents do happen and we do live in a litigious society.
+1 Then I saw that the price of the $2M was only marginally higher than $1M, so I went for that on the idea that I could sleep even better (not working tonight but that's another issue, haha).
Sorry, my post above gives the A->D answer of $2M for the amount of my umbrella. Maybe the intermediate steps would be more helpful.
A: identified a need for umbrella insurance by reading this forum
B: investigated some more and understood that you want the umbrella to protect your assets from others when something happens you could be sued for
C: I added up my assets today plus some committed future assets that maybe someone could go after as part of a suit, between $1-2M
D: purchased umbrella insurance worth $2M and checked it off my to do list

Of note, in case it helps, I went two rounds with my insurance agent sending me the forms with the $1M box checked for the amount…they just couldn't seem to get it correct. That tells me that most people who get umbrella insurance get $1M, but that's just my reading the tea leaves.

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Drain
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Re: Umbrella excess liability policy

Post by Drain » Sat Apr 26, 2014 3:28 pm

Jack wrote:
Drain wrote:With those coverages, I'm trying to estimate what someone else might want from me. And I have to guess at probabilities I have no good way to guess at.
I gave you a simple way of gauging those probabilities above. It is about as good as you are going to get. Insurance companies have the best data and prices reflect that data.
I don't think those are the probabilities I'd want. As you say, the insurance companies have those under control, and they're already priced into the premiums.

What I'd want to know (and cannot have) would be something like the 99th percentile in judgment amounts against defendants in my zip code (or maybe state would be good enough?) with my household income and assets. I just made that up, so my reasoning is likely wrong somewhere, but hopefully you get the gist. Umbrella and UM/UIM premiums are not, as far as I know, a function of household income or assets, so those are variables on which I could base a decision that wouldn't already be priced in. Even a decision model based on just one of those variables would be much better than nothing.
Darin

kenner
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Re: Umbrella excess liability policy

Post by kenner » Sat Apr 26, 2014 3:32 pm

Drain wrote:
letsgobobby wrote:What point are you trying to make? What answer do you have? What answer do you want?

Sometimes there are no easy answers. Life is like that.
I agree. I'm a little irritated by someone who passes himself off as an expert and tells everyone the topic is simple, yet has no answers himself. I agree that we don't have good ones--maybe due to a shortage of data, and maybe a good answer isn't possible. My objection is to someone pretending he has answers when he doesn't, and frankly doesn't even seem to be aware that he doesn't. For that matter, he seems to reject the notion that there are serious questions to begin with.
Why not throw up a poll and see how much total liability Bogleheads actually carry?
I don't understand how the poll results would help. What's right for one person is not necessarily right for someone else. More important, it's clear from these threads that people aren't making these decisions all that rationally (because we lack a solid, rational basis for making them), so I have no reason to use the results as a starting point for myself.

Bogleheads is usually a darned good place to find insight on matters of personal finance. The fact that no one here can offer much guidance on umbrella or UM/UIM leads me to believe there isn't any anywhere.
I am going to try this one last time. There is no simple answer to your question. Everyone's situation in life is different. Everyone deserves an answer that fits their unique circumstances. If you are really serious about protecting your family, I recommend that you have a face-to-face consultation with a qualified insurance expert.

We don't know anything about you other than the rather strange things you have posted. You should seek personal, professional help.

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Drain
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Re: Umbrella excess liability policy

Post by Drain » Sat Apr 26, 2014 3:39 pm

I do have a possible bit of rational guidance, at least with regard to umbrella, but it doesn't amount to much and it might not even be right. Here it is.

I've noticed that the second million dollars of umbrella insurance is typically less expensive than the first, as are the next few after that. Somewhere around the $5M or $6M point, that relationship reverses, and each additional million dollars of coverage is more expensive than the first. My guess at an explanation is that the higher coverage amounts tend to be purchased by people in high-income, high-profile professions. That is, these people are buying the larger amounts of coverage because they are genuinely at greater risk to be sued for more money. If that's the case, then insurance companies will have discovered that more money than they would otherwise have anticipated is paid out in claims on those coverage levels, hence the increasing marginal premiums.

If I'm right (and I stress again that I may not be), then if you aren't in one of those high-risk professions, you should stay below the inflection point of about $5M. Above that point, each additional million represents poor value unless you are at high risk of actually being sued for that much.

Unfortunately, this isn't all that useful even if I'm right, since most of us were not considering policies over $5M anyway. But it's all I have to offer, and it's an example of something I'd consider a rational basis for a decision on umbrella limits.
Darin

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Re: Umbrella excess liability policy

Post by Call_Me_Op » Sat Apr 26, 2014 3:48 pm

You need to understand that most of these cases settle out-of-court. The plaintiff's lawyer presumably has an idea of your assets and insurance coverage limits. That may be a reason for basing your coverage limit partly on exposed net worth. If you are worth X (exposed net worth) and your coverage limit is 2X, I would think that most attorneys will settle for the 2X, rather than face a protracted legal battle where at absolute most they will end up with a 3X judgement - and risk losing in court and getting nothing.
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kenner
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Re: Umbrella excess liability policy

Post by kenner » Sat Apr 26, 2014 3:49 pm

Drain wrote:I do have a possible bit of rational guidance, at least with regard to umbrella, but it doesn't amount to much and it might not even be right. Here it is.

I've noticed that the second million dollars of umbrella insurance is typically less expensive than the first, as are the next few after that. Somewhere around the $5M or $6M point, that relationship reverses, and each additional million dollars of coverage is more expensive than the first. My guess at an explanation is that the higher coverage amounts tend to be purchased by people in high-income, high-profile professions. That is, these people are buying the larger amounts of coverage because they are genuinely at greater risk to be sued for more money. If that's the case, then insurance companies will have discovered that more money than they would otherwise have anticipated is paid out in claims on those coverage levels, hence the increasing marginal premiums.

If I'm right (and I stress again that I may not be), then if you aren't in one of those high-risk professions, you should stay below the inflection point of about $5M. Above that point, each additional million represents poor value unless you are at high risk of actually being sued for that much.

Unfortunately, this isn't all that useful even if I'm right, since most of us were not considering policies over $5M anyway. But it's all I have to offer, and it's an example of something I'd consider a rational basis for a decision on umbrella limits.
Darin,

Excellent post!

Ken

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Drain
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Re: Umbrella excess liability policy

Post by Drain » Sat Apr 26, 2014 3:55 pm

kenner wrote:I am going to try this one last time. There is no simple answer to your question.
But you have repeatedly said or implied that this was simple. That has been my primary objection to what you've written. This is not a simple matter, and I don't believe anyone has the ability and data to do a good job of it, with the possible exception of actuaries for insurance companies.

That said, I apologize for attacking you. There was certainly a more polite way to express what I wanted to express, and you were posting with nothing but good intentions. I'm sorry.
Everyone's situation in life is different. Everyone deserves an answer that fits their unique circumstances.
Agreed, but I'll bet that someone with the right data could come up with a decision model that would lead to better choices than what we currently make.
If you are really serious about protecting your family, I recommend that you have a face-to-face consultation with a qualified insurance expert.
I honestly don't believe I have any way to locate such an expert, even if one exists. And if there is such an expert, I doubt he or she is an agent or broker, so I wouldn't know how to initiate contact and set up the consultation.
We don't know anything about you.... You should seek personal, professional help.
I'm not asking for personalized help here. I'm wishing for a rational decision model. Each time one of these threads comes up, I have hope that someone will post something truly helpful, but no one ever does. That's why I don't think there is a real expert out there I can actually speak with. On almost any other topic, I eventually see rational guidance. Not on this.

P.S. For the record, I had my apology typed up before you complimented my other post. :)
Darin

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Re: Umbrella excess liability policy

Post by kenner » Sat Apr 26, 2014 4:05 pm

Darin,

Thank you for your comments. My sole motivation, at this stage of my life, is to try to help others, to get them to think outside the box.

I'm not selling anything.

I wish only the best for you and your family.

Ken

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Re: Umbrella excess liability policy

Post by LadyGeek » Sat Apr 26, 2014 4:12 pm

I see that the differences have been worked out. Nonetheless, I removed some off-topic comments from the previous page. As a reminder, see: Forum Policy
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
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Jack
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Re: Umbrella excess liability policy

Post by Jack » Sat Apr 26, 2014 4:26 pm

Seems pretty straightforward to me. See what your insurance company charges for umbrella insurance in your neighborhood. If the price is $125 for $1 million of umbrella, you know that your probability of sustaining a million dollar judgment is significantly less than 1 in 8000 per year. What more do you want to know? Would it make much difference to you if you were to find out it is actually 1 in 12,000 rather than 1 in 8000?

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Re: Umbrella excess liability policy

Post by ualdriver » Sat Apr 26, 2014 4:32 pm

Drain wrote: What I'd want to know (and cannot have) would be something like the 99th percentile in judgment amounts against defendants in my zip code (or maybe state would be good enough?) with my household income and assets. I just made that up, so my reasoning is likely wrong somewhere, but hopefully you get the gist. Umbrella and UM/UIM premiums are not, as far as I know, a function of household income or assets, so those are variables on which I could base a decision that wouldn't already be priced in. Even a decision model based on just one of those variables would be much better than nothing.
kenner wrote:I am going to try this one last time. There is no simple answer to your question. Everyone's situation in life is different. Everyone deserves an answer that fits their unique circumstances. If you are really serious about protecting your family, I recommend that you have a face-to-face consultation with a qualified insurance expert.
Yeah, I guess I am kind of looking for what Drain mentions above. Like some sort of sampling of all the jury awards against people found guilty of motor vehicle accidents, for example, in a given state, in a given year. Just numbers so I could at least make some sort of inference. I haven't a clue if $1M is an extraordinary settlement/award or $100M is. I would bet money my insurance agent doesn't have a clue, either, nor would most. I guess I'll just stick with my $3M and hope human error never causes me to have to explore the limits of my insurance.

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Re: Umbrella excess liability policy

Post by kenner » Sat Apr 26, 2014 4:53 pm

ualdriver wrote: I guess I'll just stick with my $3M and hope human error never causes me to have to explore the limits of my insurance.
[OT comments removed by admin LadyGeek]

Best wishes,
Ken

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Re: Umbrella excess liability policy

Post by cowboysFan » Sat Apr 26, 2014 6:29 pm

ualdriver wrote: I haven't a clue if $1M is an extraordinary settlement/award or $100M is. I would bet money my insurance agent doesn't have a clue, either, nor would most. I guess I'll just stick with my $3M and hope human error never causes me to have to explore the limits of my insurance.

I'll shamelessly plug for my own thread: http://www.bogleheads.org/forum/viewtop ... st=2038721, but most people thought that type of data was irrelevant to how much insurance to buy.

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Re: Umbrella excess liability policy

Post by Quasimodo » Sat Apr 26, 2014 10:29 pm

Perhaps I misunderstood Darin’s post, but I’ll try to address one of the questions. I used to be an umbrella underwriter for business clients. Sometimes a business would want umbrella limits higher than one company could provide, so they’d buy the limits in layers from several different insurers. One company’s minimum premiums per million of coverage might be higher than the premium a company writing a lower layer would charge. It wasn’t representative of the risk.

Most insurers buy reinsurance, which is basically using other insurers to lay off part of their bets . Possibly the example given involved an insurer having to buy special reinsurance in order to provide higher limits than they usually wrote. The reinsurer might charge a higher rate per million than the company providing the lower layer. I doubt that any of the insurers perceived the higher limit warranted a higher premium per million dollars of limits because of a higher likelihood of loss.

Although the above is an example for umbrella liability written for businesses, I believe the same general principal would apply to umbrella insurance written for individuals.

John
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Re: Umbrella excess liability policy

Post by letsgobobby » Sat Apr 26, 2014 11:22 pm

Drain wrote:
kenner wrote:I am going to try this one last time. There is no simple answer to your question.
But you have repeatedly said or implied that this was simple. That has been my primary objection to what you've written. This is not a simple matter, and I don't believe anyone has the ability and data to do a good job of it, with the possible exception of actuaries for insurance companies.

That said, I apologize for attacking you. There was certainly a more polite way to express what I wanted to express, and you were posting with nothing but good intentions. I'm sorry.
Everyone's situation in life is different. Everyone deserves an answer that fits their unique circumstances.
Agreed, but I'll bet that someone with the right data could come up with a decision model that would lead to better choices than what we currently make.
If you are really serious about protecting your family, I recommend that you have a face-to-face consultation with a qualified insurance expert.
I honestly don't believe I have any way to locate such an expert, even if one exists. And if there is such an expert, I doubt he or she is an agent or broker, so I wouldn't know how to initiate contact and set up the consultation.
We don't know anything about you.... You should seek personal, professional help.
I'm not asking for personalized help here. I'm wishing for a rational decision model. Each time one of these threads comes up, I have hope that someone will post something truly helpful, but no one ever does. That's why I don't think there is a real expert out there I can actually speak with. On almost any other topic, I eventually see rational guidance. Not on this.

P.S. For the record, I had my apology typed up before you complimented my other post. :)
I think the data you're looking for wouldn't really be as helpful as you think. This falls under the category of not only considering the likelihood of being sued, but also the consequences if you are sued successfully. In other words the odds may be extraordinarily low of a high dollar lawsuit, but if the potential judgment remains high then insurance is needed nonetheless. In fact this is likely the baseline assumption for umbrella/personal liability policies in the first place, as evidenced by the very low premiums they carry.

In plain terms, if the risk is 0.01% of a $2 million lawsuit, I'm going to carry $2M in umbrella. If the risk is 0.0001%, I'm still going to carry $2M in umbrella. Because if lightning strikes, I want to be protected, no matter how small the risk of lightning striking in the first place.

And yet $2M is not the theoretical cap. $10M is not the theoretic cap. There is no cap. I can slip on black ice and pulverize a Wall street banker, her tech IPO husband, and their two hedge fund manager kids on a bad day. That's a $1 billion liability.

So pick a number. $100,000 is too low. A billion dollars is too high. Pick a number (remember, this stuff is cheap, so err high), and move on...

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Re: Umbrella excess liability policy

Post by placeholder » Sun Apr 27, 2014 12:12 am

kenner wrote:I have confidence that the vast majority of individuals participating in this forum are capable of defining for themselves what is feasible and maximal for their life situation.
Perhaps but that doesn't really add much clarity for me in regards to your statement as it's what you consider to be feasible etc.

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Re: Umbrella excess liability policy

Post by Drain » Sun Apr 27, 2014 7:54 am

letsgobobby wrote:This falls under the category of not only considering the likelihood of being sued, but also the consequences if you are sued successfully.
No, the first consideration should not be part of the decision. It's already priced into the premium. Only the second part matters. It happens to be quite complicated all by itself, but at least we can simplify by not worrying about the likelihood of being sued.
Darin

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Re: Umbrella excess liability policy

Post by Drain » Sun Apr 27, 2014 7:57 am

Quasimodo wrote:Perhaps I misunderstood Darin’s post, but I’ll try to address one of the questions. I used to be an umbrella underwriter for business clients. Sometimes a business would want umbrella limits higher than one company could provide, so they’d buy the limits in layers from several different insurers. One company’s minimum premiums per million of coverage might be higher than the premium a company writing a lower layer would charge. It wasn’t representative of the risk.

Most insurers buy reinsurance, which is basically using other insurers to lay off part of their bets . Possibly the example given involved an insurer having to buy special reinsurance in order to provide higher limits than they usually wrote. The reinsurer might charge a higher rate per million than the company providing the lower layer. I doubt that any of the insurers perceived the higher limit warranted a higher premium per million dollars of limits because of a higher likelihood of loss.

Although the above is an example for umbrella liability written for businesses, I believe the same general principal would apply to umbrella insurance written for individuals.

John
Yes, this would blow my theory if it were the main or only factor. Well...I suppose I could still argue that higher limits represent poor value compared with lower limits, and that one shouldn't buy them unless they're really necessary (i.e., high-income, high-profile profession). I may have had the cause wrong, but off the top of my head, it seems like the decision model doesn't change. Right?
Darin

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Re: Umbrella excess liability policy

Post by Quasimodo » Sun Apr 27, 2014 8:53 am

Hi Darin:

From the standpoint of so-called “likelihood of loss”, any level of umbrella liability insurance is going to be low on the scale. Still, in our society with more attorneys than any other country, it is difficult to know with any certainty where the dollar limit would be as to how much I might be sued for. Driving an automobile creates the possibility of a bad accident that injures or even kills several people. How much is that going to cost?

I do agree with your point that one’s level of income, savings and investments are a reasonable place to start when deciding how much umbrella liability insurance to buy.

My wife and I have a $1 million personal umbrella policy. We have nowhere near that much in financial resources, but for a cost that is trivial even for our modest retirement income the policy gives us a team of insurance company claims adjusters and attorneys some strong motivation to defend us against even a frivolous lawsuit. It would be a financial struggle for us to hire an attorney on our own.

The premium for personal umbrella liability insurance is pretty insignificant for most people with investments and retirement savings. It’s easy enough to get a quote for higher limits and then decide how much to buy. It’s likely to be more affordable than expected.

Good luck whatever you decide.

John
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Re: Umbrella excess liability policy

Post by letsgobobby » Sun Apr 27, 2014 9:58 am

Drain wrote:
letsgobobby wrote:This falls under the category of not only considering the likelihood of being sued, but also the consequences if you are sued successfully.
No, the first consideration should not be part of the decision. It's already priced into the premium. Only the second part matters. It happens to be quite complicated all by itself, but at least we can simplify by not worrying about the likelihood of being sued.
That's exactly my point. Likelihood is essentially irrelevant as long as the chance is not literally zero; we are afforded that easy out because the cost of umbrella is quite low. If the cost were very high, it would be a more difficult decision.

So we agree the risk is non-zero, and the consequences potentially quite high, therefore we must buy. How much? Since there is no theoretical limit to the amount you can be sued for, there is no limit to how much umbrella you should buy, except that infinite amounts are infinitely expensive.

But the data you seek won't help because:

1. high dollar settlements are presumably very rare, as evidenced by the low cost of umbrella, therefore n is going to be quite small and the statistical validity of the data you find will be in doubt; and

2. the fact that no one of your means in your neighborhood has recently settled for $10 million does not mean it won't happen to you - that's the essence of the problem - there is no upper limit to how much liability you may face regardless of prior experience.

In other words, this problem is one of Rumsfeld's known unknowns, but also a known unknowable. There is no mathematical formula or set of data which would make your decision easy because we are by definition talking about very low probability events with very high consequences if they occur.

In my view that makes the problem that complex, but also that simple. It is simple because it is largely, within certain reasonable bounds, primarily a personal, emotional, subjective decision. There is no perfect answer. Maybe a meditative type would advise, 'The answer is simple - look inside yourself.'

What bounds are reasonable?

Low end: at least $1 million. Gets you a team of attorneys. Generally very inexpensive. You can say you have umbrella insurance when a Boglehead poll pops up.

High end: maybe $5 million, since umbrella appears to get exponentially more expensive after that. But this might not be enough if you run in expensive circles.

My sleep-well-at-night feeling - an amount equal to my net worth, or a little more. Even though some of my assets are theoretically protected (retirement accounts, primary home, etc) there are always future earnings to attach so this buys me a little extra peace of mind, for no other reason than it feels better to me.

One data point which might help: in your state, how much do juries learn about your liability limits and your personal financial assets?

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Re: Umbrella excess liability policy

Post by msilenus » Sun Apr 27, 2014 2:55 pm

I've also been pining for a rational decision model. I think I have a framework in mind, but it's original work by a layman and missing some parameters.

The first input is your zip code, or, more precisely, the average income in your zip code. This is an important input because if you live in an expensive zip code, you are more likely to injure high-earning people. If you live in a less expensive zip code, you are less likely to injure a high-earner. Call this X.

The second input is whatever typical damages look like in cases involving catastrophic injury to a family earning X. Call this D(X). I understand that judgments are typically based on models of implied future earnings, so this is a much more personalized view of the situation than you can get from taking raw state-level damages.

I suspect that to be fully covered, one should be insured for 2*D(X)-4*D(X). You don't want your insurance company to look at a fair settlement offer for $D(X) and decide to fight because they have nothing to lose, so we increase it to keep *their* skin in the game. It also creates some headroom in case you hit someone who makes more than average for your area.

Finally, I suspect that one should probably be insured for the minimum of the above, and about 2x their exposed net worth. As mentioned, litigants can get a sense of your exposed net worth, and if you're insured, they'll probably figure that out as well once they read the business card of whomever's handling your case. So you probably want a bit more coverage than they'd think to go after, again, to keep your insurance company's skin in the game.

My $.02. Very interested in any feedback. It might be wildly overly conservative, but I think it's a better place to start thinking than the standard advice of "insure up to your net worth."

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Re: Umbrella excess liability policy

Post by Quasimodo » Sun Apr 27, 2014 3:39 pm

Lawsuits that are large enough to require an umbrella liability policy are uncommon and unpredictable. I wonder about the accuracy of trying to calculate one’s chances of being involved in a large personal liability lawsuit. One metric I would consider is comparing the umbrella premium to how much you spend on gas for your car(s) for one year. Is it even a noticeable expense in that context?

John
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Re: Umbrella excess liability policy

Post by Mursili » Sun Apr 27, 2014 5:28 pm

Drain wrote:The fact that no one here can offer much guidance on umbrella or UM/UIM leads me to believe there isn't any anywhere.
I do not know if UM/UIM insurance is a good value or not, but the experience of a co-worker led me to consider it differently. He was riding a motorcycle on a highway and someone turned left in front of him (with his daughter on the back of the bike). The injuries were very significant. Listening to his "lessons learned" I understand a clear situation where generous amounts of UM/UIM are a great idea. You do not want to be getting ready for your next surgery when the hospital essentially make a "margin call" and starts wanting to know who is going to pay for the next procedure. One alternative is to start writing the checks yourself (because your health insurance company tells you that they will not pay until you have exhausted the legal recourse to the person liable) and see what happens when you sue the guy who is driving without insurance. The other option is to let your insurance company deal with the situation.

I live in a state that only recently required insurance companies to not default to a very low level of UM/UIM. This is also a poor state where many people drive uninsured. I have boosted my UM/UIM up to the levels of my liability (arbitrary, I know), but those levels should cover me/my family for significant injuries just as I sized them to that level to insure others at the same level. I now pay more for UM/UIM than liability coverage.
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Re: Umbrella excess liability policy

Post by Call_Me_Op » Sun Apr 27, 2014 6:23 pm

msilenus wrote: The first input is your zip code, or, more precisely, the average income in your zip code. This is an important input because if you live in an expensive zip code, you are more likely to injure high-earning people. If you live in a less expensive zip code, you are less likely to injure a high-earner. Call this X.
This seems like a dangerous over-simplification. Most large awards result from auto accidents, and unless you mainly drive in small circles around your house, you should widen the zone of consideration. For example, I live in a zip code with average salary of X, but work in one with average salary closer to 10X.
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Re: Umbrella excess liability policy

Post by ualdriver » Sun Apr 27, 2014 8:48 pm

cowboysFan wrote:
ualdriver wrote: I haven't a clue if $1M is an extraordinary settlement/award or $100M is. I would bet money my insurance agent doesn't have a clue, either, nor would most. I guess I'll just stick with my $3M and hope human error never causes me to have to explore the limits of my insurance.
I'll shamelessly plug for my own thread: http://www.bogleheads.org/forum/viewtop ... st=2038721, but most people thought that type of data was irrelevant to how much insurance to buy.
Actually I just read over that thread and will probably read it again. I particularly liked the first post where you listed the highest verdicts for a sample state (California). That is the type of data, I guess, I am looking for. I understand that just because the Evans case paid out $32M that it doesn't mean I couldn't be sued for more or less, but it's an interesting data point that I would love to see more of for my state, for example. $32M is an outlier that I wouldn't even bother insuring for, but at least I sorta/kinda know where the high end of such a lawsuit might be. I would have guessed it was much higher. I'd love to see where the fat part of the "award curve" is for my state, too.

Further, the point made by DFAMAN about "Stowers Doctrine" in Texas was interesting as well. Would love to know if that doctrine (or a similar one) is commonly exercised in other states.

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Re: Umbrella excess liability policy

Post by Drain » Mon Apr 28, 2014 8:28 am

I'd like to respond to several posts in detail, but I don't have time right now if I want to propose a new model, which I do.

Letsgobobby, with respect to what you currently view as a practical guess at what the decision model for umbrella insurance should be, I am on the exact same page. Almost to the letter. That said, one item on which we might disagree is on what to do with low probabilities. Your attitude seems to be that low is low, so don't think too much about it. I say there is a big difference between a 1 percent chance of something, and a 0.1 percent chance of something, and 0.01 percent chance of something. It's one in a hundred, versus one in a thousand, versus one in ten thousand. I'd care about the distinctions between those probabilities when I was making this kind of decision.

Msilenus, I like your model, but I have a feeling the data might be too complex to define, or at least to have much confidence in without large sample sizes...which, as has been mentioned, would be difficult to arrange for by zip code.

Let me propose a different approach that might work out to be simpler. Keep in mind as you read it that I am making simplicity a high priority. Another big motivation for the model is the difficulty in obtaining (or even defining, to some extent) the data needed for the models I and msilenus suggested. I may not be able to improve on those suggestions, but I'll throw this out there and see what others think.

With respect to any insurance, what I ultimately care about are the outcomes for people who actually buy the coverage. In particular, if I'm trying to decide whether buying umbrella insurance is a good idea, and if it is, then how much would be optimal for me, I want to study the outcomes realized by holders of umbrella policies. I don't care about judgments in general--now that I think about it, that information might be better for a sales pitch than for this decision process. I care about what happens--the bottom line--to those who have umbrella insurance.

Take the $1M level of coverage, for example. I want to know how many people in my zip code (yes, sample size--hang on) had umbrella insurance each year, and how many times during each year one of those individuals (yet another issue, which I'll get to in a moment) had to pay out money from their own pockets as the result of a court judgment. For simplicity, I won't worry about how much they had to pay, or whether they had to pay because the matter was outside the scope of the policy. (I'm iffy on both parts there, but a case can be made for each, especially assuming they make data availability much more likely. I'm trying to formulate an approach that's actually possible, not one that is theoretically ideal.) The bottom line I'd come up with would be an estimate of the probability that an individual with a $1M umbrella policy would have to pay a court award in spite of the insurance in a given year.

Do this for all amounts of umbrella coverage, including $0 (no coverage at all)--and we should probably say liability coverage, not specifically umbrella). This would give us a distribution (or density function--whatever :)) on which to base our decision. The decision would still be arbitrary, but at least we could see what we were getting for our money. A sampling of estimates (which I am fabricating from thin air) might appear something like:

$300K of auto liability -> 1% chance annually of paying out of pocket on an auto-related court judgment
$1M of auto liability -> 0.1% chance
$2M -> 0.04% chance
$5M -> 0.01% chance

Again, this approach is not necessarily more appealing theoretically than has already been suggested. I'm just thinking that the data might be easier to define and gather.

Regarding the two items I said I'd come back to...first, there's the matter of sample size. I agree that breaking the data out by zip code might result in samples that are too small, although it is also possible that even with sparse data for the larger awards, we might still be able to fit a curve to the distribution. Assuming the samples would be too small even for curve fitting, we could look at all-U.S. data, and then cleverly scale is some coarse way for each state, zip code, or whatever. I don't want to think about the details of that at the moment :), but I suspect it could be done. There would be some problems with a simple scaling strategy, but perhaps it would be good enough for almost everybody.

The other issue that came immediately to mind as I was typing the word "individuals" was that I think we'd need to break this out by the number of people in the household, since more family members means more likelihood of something going wrong. Or maybe the output variable could be annual percentage chance of out-of-pocket payout, per dollar of premium paid. That would factor in additional risk from a variety sources, including family size. I figure insurance companies have that stuff worked out pretty well already.

So, what do you think? Good? Bad? Or is everyone asleep at this point? :D
Darin

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Re: Umbrella excess liability policy

Post by Quasimodo » Mon Apr 28, 2014 10:18 am

One article that gives some advice on determining how much umbrella coverage to buy:

http://www.insuranceqna.com/liability-i ... rance.html

A reinsurance company discussion of umbrella claims:

http://www.genre.com/knowledge/publicat ... pu-en.html

One comment they make: "...too low a frequency of losses to help most individual insurers identify loss trends." If insurers have difficulty identify loss trends... well, good luck with that.

The likelihood of a personal umbrella loss is low, but they do happen and the financial results of a large lawsuit could be extreme. Personal umbrella premiums are low relative to auto and homeowners policies. The savings by not having the coverage could lead to serious regret.

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Re: Umbrella excess liability policy

Post by Drain » Mon Apr 28, 2014 10:51 am

Quasimodo wrote:One article that gives some advice on determining how much umbrella coverage to buy:

http://www.insuranceqna.com/liability-i ... rance.html
I wish authors would talk about whether they mean assets (or net worth) or exposed assets (or net worth). It strikes me as such an obvious distinction to make that I can't help seeing these articles as non-credible. Maybe assets really is what's meant, in which case, fine, but clarify a little.
A reinsurance company discussion of umbrella claims:

http://www.genre.com/knowledge/publicat ... pu-en.html

One comment they make: "...too low a frequency of losses to help most individual insurers identify loss trends." If insurers have difficulty identify loss trends... well, good luck with that.
Notice what I have bolded in what you quoted above.

First off, they're saying that a typical individual insurer may not have enough data. Okay, but the largest ones do, and certainly an aggregator like Gen Re does. So that's not a problem.

Second, they're talking about detecting trends (changes from one period to another), which were never the focus of this thread, and I don't think it should be a part of an individual's decision process, since the insurer can price in trends better than the insured can. I do agree that if the insurer can't, neither can the insured.
Darin

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Re: Umbrella excess liability policy

Post by ralph124cf » Mon Apr 28, 2014 11:58 am

I know that most posters on this thread have already decided that umbrella insurance is a good idea, but for the undecided an extra incentive.

Suppose that you already have auto liability insurance of 1M and home owners liability insurance of 1M. Most umbrella policies state that you must have minimum levels of liability insurance in place before they will insure you. The companies that I have checked specify minimum levels of this type of insurance of 300K to 500K. The reduction in payment for reducing the auto and home policy limits can just about pay for the first 1M in umbrella limits.

Ralph

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Re: Umbrella excess liability policy

Post by letsgobobby » Mon Apr 28, 2014 1:40 pm

Darin, creative thinking - though I agree not necessarily much less arbitrary at the end.

Umbrella seems a lot like term life insurance. Until/unless you can afford to self-insure (and with infinite liability risk that may be impossible), you need some. How much? There are guidelines, but no hard and fast rules and since the product is very inexpensive, it's probably reasonable to err on the side of too much rather than too little.

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Re: Umbrella excess liability policy

Post by msilenus » Mon Apr 28, 2014 2:12 pm

Drain,

Is it possible to get the data necessary to construct your model? I'm not sure how one looks at a judgment and concludes if an umbrella policy was involved. If it is, then I think it's a good thing to factor in.

Note: If you think that zip code is only important as a proxy metric for income, (and I do) then I think the zip code sample size problem becomes easier. You just treat all zip codes in the state (or class of sufficiently similar states?) with similar income levels as part of the same statistical bucket.

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Re: Umbrella excess liability policy

Post by Drain » Mon Apr 28, 2014 3:20 pm

msilenus wrote:Is it possible to get the data necessary to construct your model?
Not for me.
I'm not sure how one looks at a judgment and concludes if an umbrella policy was involved.
I'm thinking about cases in which an insurance company got involved in the defense of an insured client. The insurance company knows hwo much liability coverage the client had.

That was what motivated my idea. The courts wouldn't have the data needed, but the insurance companies would. Right? You'd have to convince them to cough it up, but....
Note: If you think that zip code is only important as a proxy metric for income, (and I do) then I think the zip code sample size problem becomes easier. You just treat all zip codes in the state (or class of sufficiently similar states?) with similar income levels as part of the same statistical bucket.
Yep, that's what I meant by "clever scaling". :) You'd lose differences in litigiousness (?) from zip to zip, or at least from state to state, but that may be an acceptable comprise, especially given the coarseness of umbrella limits (only in multiples of $1M). I'd be more worried about this for higher coverage amounts, but for the under-$5M customers, it'd probably work well enough...I think.
Darin

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Re: Umbrella excess liability policy

Post by msj16 » Tue Apr 29, 2014 7:48 am

I want to thank Kenner for giving of time and expertise. Kenner is trying to help others avoid catastrophic situations. I have a family member who was hit by a truck while riding a bicycle. The police officer declared the truck completely at fault. The truck was driven by a Mexican driver without even a U.S driver's license. My family member sustained a serious concussion which hugely impacted the ability to work. My family member carried 500,000 of uninsured/underinsured automobile coverage. Such coverage is vitally important for all of us to have.

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Re: Umbrella excess liability policy

Post by Drain » Tue Apr 29, 2014 8:44 am

msj16 wrote:My family member carried 500,000 of uninsured/underinsured automobile coverage.
If you don't mind my asking...how much of the $500K has the family member gotten? And did the person have disability insurance?
Darin

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Re: Umbrella excess liability policy

Post by msj16 » Tue Apr 29, 2014 4:30 pm

The case is still active but from what I know, I wouldn't be surprised if the settlement was substantial enough to award all of it. Yes, there was disability insurance.

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Re: Umbrella excess liability policy

Post by cowboysFan » Mon May 05, 2014 7:47 pm

kenner wrote:
Drain wrote: Yes, I know, there just isn't a good set of guidelines out there. I mentioned in another thread that this was one of the really tough insurance issues--not the most crucial, but difficult. The only one I think is harder is UM/UIM.
I'll start with the easiest question of all: Uninsured/Underinsured Coverage? Buy the most you can afford. I don't know what state you live in, but in some states about 30% of automobile owners/drivers have no insurance or absolute minimum insurance. UM coverage directly helps you, your family and your passengers.
If there was an accident with an uninsured driver with $500k of medical bills that left me disabled and I have $500k of um/uim, who gets paid first: me or my health insurance company as a result of subrogation? If the health insurance company's right to subrogation comes first, then do I really benefit from um/uim?

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Re: Umbrella excess liability policy

Post by Quasimodo » Mon May 05, 2014 8:58 pm

If I don't carry uninsured motorists coverage and I am injured by an uninsured motorist, then whatever other insurance I have, such as major medical coverage, will be my only recourse.

Here is one article that offers advice regarding uninsured motorist coverage:

http://www.carsdirect.com/car-insurance ... -necessary

Uninsured motorist coverage is inexpensive and provides real protection without a deductible or copay or limit on which doctor I can use.

John
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Re: Umbrella excess liability policy

Post by panhead » Tue May 06, 2014 7:01 am

I just went through this exercise as I just purchased an umbrella policy. I talked to my insurance agent and she said, "add the value of your house, your 401k, any other assets, and the value of your future income steam." I considered this very error-ridden as 401k/house is protected (at least in my state), plus as has been discussed over and over, your assets may not be relevant in what you are sued for. I also tried to find a good metric for determining the insurance amount but was unable to do so. Any formula would involve statistical probability analysis of an event occuring plus some multiplier of common judgements. I'm sure the insurance companies and their actuaries have some data on this, but I've never seen much along these lines that would be helpful to me in print.

So, with that said, my conclusion was to add up my exposed assets, take a reasonable number of years of future employment and multiply that by my current years earnings, add the two together and insure for this amount as long as I didn't find the cost unreasonable. The cost came in at about what my auto policy is for the year, so I considered this reasonable. This protects me from losing what I have, and what I can have. I consider this insurance amount very conservative and with the available data, the best decision I can make. After all, in a worst-case scenario, I would retain my home and my retirement money and lose everything else. Horrible, but not the end of the world. I hate to even bring this up, but this also should be considered when some of us are thinking about whether or not to pay off our personal residence, as this is usually a 'protected' asset.

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Re: Umbrella excess liability policy

Post by Drain » Tue May 06, 2014 7:51 am

If my medical bills are covered by either someone else's liability insurance or my own UM/UIM, does the insurance wait for me to be billed and then pay the co-pays or coinsurance? Or does the insurance pay the doctor directly at something approaching the "crazy rate"? I'd hope the former, but it occurs to me that I don't actually know.
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Re: Umbrella excess liability policy

Post by Call_Me_Op » Tue May 06, 2014 8:11 am

panhead wrote: This protects me from losing what I have, and what I can have.
It does? How so? Have you been reading this thread?
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Re: Umbrella excess liability policy

Post by panhead » Tue May 06, 2014 9:45 am

Call_Me_Op wrote:
panhead wrote: This protects me from losing what I have, and what I can have.
It does? How so? Have you been reading this thread?
My statement wasn't clear. In other words, the policy mirrors what I have and what I can have in the future thru earnings. Without the policy, if a judgement was made against me for all of, or more than my total net worth, all of my unprotected assets, and a percent of my future income, would all be gone. This is what I meant, and this is what I consider to be "good enough". I am making the assumption (maybe more of a hypothesis) that a judgement in excess of this amount would be unlikely enough that insurance beyond this amount is unnecessary. That's the line in the sand I drew, and I'm comfortable with it. Is it possible that a judgement could be made against me for my net worth + umbrella policy max? Sure, anything's possible. But as you insure for more and more, the probability of a judgement of that size gets smaller and smaller, and other things become more likely, such as an ELE (extinction level event) and I don't know how to insure against that ;-)

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Re: Umbrella excess liability policy

Post by Mursili » Wed May 28, 2014 7:02 pm

Quasimodo wrote:If I don't carry uninsured motorists coverage and I am injured by an uninsured motorist, then whatever other insurance I have, such as major medical coverage, will be my only recourse.
And there is the rub. While someday you will likely not be out a lot of money, your major medical insurer will likely know that you were injured in an accident. They may very well deny you coverage until you have exhausted all legal paths against the entities at fault. Then they will cover your losses not covered by other parties.

When you are lying in the hospital near death, it would be very nice to know that your insurance company which you purchased UM/UIM from will be covering the costs regardless of who is at fault. Otherwise, you may be covering a bunch of costs - even though you know that "someday" you will not be out a lot of money.

This was the lesson of a co-worker's brush with death in a motorcycle crash.
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Re: Umbrella excess liability policy

Post by cowboysFan » Wed May 28, 2014 7:56 pm

Mursili wrote:
Quasimodo wrote:If I don't carry uninsured motorists coverage and I am injured by an uninsured motorist, then whatever other insurance I have, such as major medical coverage, will be my only recourse.
And there is the rub. While someday you will likely not be out a lot of money, your major medical insurer will likely know that you were injured in an accident. They may very well deny you coverage until you have exhausted all legal paths against the entities at fault. Then they will cover your losses not covered by other parties.

When you are lying in the hospital near death, it would be very nice to know that your insurance company which you purchased UM/UIM from will be covering the costs regardless of who is at fault. Otherwise, you may be covering a bunch of costs - even though you know that "someday" you will not be out a lot of money.

This was the lesson of a co-worker's brush with death in a motorcycle crash.
What specifically happened in your friend's scenario? Did the doctors and hospitals refuse to provide medical treatment? Were there medical treatments your friend didn't get because his insurance company denied coverage? Did he pay out of pocket for all treatment?

Here's something I got from one lawyer's Web site:

In auto accident cases where you have health insurance, that should be your primary source to pay bills. You should provide the hospital or doctor with all the necessary information to bill the health insurance carrier directly. Some will not do so if there is an accident claim involved. The reason they do this is they hope to recover more from your accident settlement than they would get as payment in full from your health insurance. Legally they cannot do this. Insist they bill your health insurance. Any co-pays or deductibles remain your responsibility, so get those paid immediately.
Last edited by cowboysFan on Wed May 28, 2014 8:02 pm, edited 4 times in total.

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Re: Umbrella excess liability policy

Post by kenner » Wed May 28, 2014 7:57 pm

Mursili wrote:
Quasimodo wrote:If I don't carry uninsured motorists coverage and I am injured by an uninsured motorist, then whatever other insurance I have, such as major medical coverage, will be my only recourse.
And there is the rub. While someday you will likely not be out a lot of money, your major medical insurer will likely know that you were injured in an accident. They may very well deny you coverage until you have exhausted all legal paths against the entities at fault. Then they will cover your losses not covered by other parties.

When you are lying in the hospital near death, it would be very nice to know that your insurance company which you purchased UM/UIM from will be covering the costs regardless of who is at fault. Otherwise, you may be covering a bunch of costs - even though you know that "someday" you will not be out a lot of money.

This was the lesson of a co-worker's brush with death in a motorcycle crash.
The above statements are probably wrong, depending on applicable state law and the wording of insurance contracts.

Major medical is a contract of insurance. It pays from dollar one, according to contractual terms, regardless of fault.

UM payments are virtually always dependent on whether the injuries were caused by the negligence/fault of an uninsured/underinsured motorist. UM coverage will not compensate you for your own negligence (maybe No Fault coverage might apply).

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Re: Umbrella excess liability policy

Post by jimmyrules712 » Wed May 28, 2014 9:15 pm

I'm responding just to say that I too am unsure how much of an umbrella policy (and UIM) makes sense. Statements like "buy as much as you can afford" or "buy as much as you need to sleep at night" are not very helpful. I can afford to spend 75% of my income on insurance if I need to, that doesn't mean I should. I sleep at night just fine without any liability insurance because I'm not very risk-adverse, but I know that wouldn't be very smart.

What frustrates me the most about these topics is the advice given seems to be meant to drive fear and emotionally based decisions. When someone pitching insurance tries to sell it based on scare tactics it makes me want to decline the coverage entirely.

Can we base this conversation on facts? Does anyone have access to factual data that indicates how likely a person is to have a judgement against them, and for how much?

I do agree with other posters that basing it on net worth does not make sense. In my mind it should be based on the likelihood, or risk, of judgments at certain amounts happening.

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Re: Umbrella excess liability policy

Post by kenner » Wed May 28, 2014 10:14 pm

jimmyrules712 wrote: ....emotionally based decisions.

Some of us are emotionally attached to our children, grandchildren and other loved ones in our lives. We want them to be as comfortable as possible in the event of adversity. And yes, sometimes that entails financial considerations.

When someone pitching insurance tries to sell it based on scare tactics it makes me want to decline the coverage entirely.

Scare tactics? Really? Are you serious? Isn't that a bit reactionary?

The desire to protect our families (and to encourage others to do the same) cannot, in any sense of rational thought, be considered to be a "scare tactic".


Can we base this conversation on facts? Does anyone have access to factual data that indicates how likely a person is to have a judgement against them, and for how much?
Facts. Not everything the future has in store for us is a "fact" (except for the fact that all of us will someday die). If you really want "factual data", just go to your local law library and spend a few hours reading jury verdict synopses from around the U. S. Or talk with an experienced insurance expert.

The "factual data" you seek may not exist. Sometimes we are left with common sense and a desire to protect our loved ones. That is what insurance is designed to do.

By the way, I do not sell insurance. I sue insurance companies for a living.

At the same time, I recognize the need for everyone to adequately insure themselves against the vicissitudes that life sometimes entails.

In four decades of experience, I've never met anyone who enjoyed paying insurance premiums for UM coverage.

I also never encountered anyone who actually experienced a tragic loss who did not wish they had much higher limits of UM coverage.

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Re: Umbrella excess liability policy

Post by LeeMKE » Thu May 29, 2014 12:10 am

Humm. With so much discussion already, I was going to skip commenting, but no one has taken the approach I take to umbrella coverage, so I'll offer my approach too.

When I was single, I added $1 million rider figuring my exposure was higher with the duplex I owned and lived in with a renter next door.

Later when I remarried, two step daughters came with the package and I upped our umbrella coverage to $2 million because they represented a greater exposure to liability.

I'm retired and once my husband retires and closes his business, I might reduce our umbrella to $1 million. Our exposure to liability will be reduced to a level that our regular coverage plus an umbrella of $1 million should cover, but enough time has passed that with inflation, $2 million might be sensible so long as we are still driving.

Instead of using my net worth, I try to estimate what additional exposures I might have that aren't already covered by my current insurance policies.

FWIW
The mightiest Oak is just a nut who stayed the course.

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