How much Umbrella Insurance coverage needed?

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MikeT
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How much Umbrella Insurance coverage needed?

Post by MikeT » Tue Sep 27, 2016 9:46 am

Should the umbrella amount = your assets or the maximum potential claim you might ever face?

For example, if you have $1 million in assets, should the umbrella = $1 million.

Or

If you drive into a school bus and kill 3 kids and paralyze 2, and the lawsuits = $5 million, should you have a $5 million umbrella?

From a practical standpoint, there's really no upper-limit on a jury award so trying to ensure for a maximum verdict seems hard to do.

Thanks,

Mike

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BolderBoy
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Re: How much Umbrella Insurance coverage needed?

Post by BolderBoy » Tue Sep 27, 2016 11:08 am

MikeT wrote:Should the umbrella amount = your assets or the maximum potential claim you might ever face?

For example, if you have $1 million in assets, should the umbrella = $1 million.

Or

If you drive into a school bus and kill 3 kids and paralyze 2, and the lawsuits = $5 million, should you have a $5 million umbrella?

From a practical standpoint, there's really no upper-limit on a jury award so trying to ensure for a maximum verdict seems hard to do.
From numerous previous threads on this very subject we know a number of things. First, when you buy an umbrella policy you are buying a lawyer to defend you. Not sure that the higher the umbrella face value = buying more (or even better) lawyers. Second, it is uncommon for the plaintiffs to seek more than insurance coverage, but by no means impossible. If one is in a high income profession the plaintiffs may indeed seek all the insurance and then annuity-like, seek an ongoing income stream from the defendant's livelihood (I have a friend who did this and the judgment against future income even survived the defendant's bankruptcy).

So you are right - how much is "enough"? Though it may be faux comfort, I buy enough to cover my net worth and hope that is adequate.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

MikeT
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Re: How much Umbrella Insurance coverage needed?

Post by MikeT » Tue Sep 27, 2016 11:11 am

Thanks @BolderBoy !!

KlangFool
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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Tue Sep 27, 2016 11:12 am

MikeT wrote:Should the umbrella amount = your assets or the maximum potential claim you might ever face?

For example, if you have $1 million in assets, should the umbrella = $1 million.

Or

If you drive into a school bus and kill 3 kids and paralyze 2, and the lawsuits = $5 million, should you have a $5 million umbrella?

From a practical standpoint, there's really no upper-limit on a jury award so trying to ensure for a maximum verdict seems hard to do.

Thanks,

Mike
MikeT,

For normal people, 2 X assets seem like a good idea. The insurance company will be more motivated to protect you since they have more to lose than you do.

KlangFool

z91
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Re: How much Umbrella Insurance coverage needed?

Post by z91 » Tue Sep 27, 2016 11:42 am

Out of curiosity how much more does additional insurance cost? I recently changed my limits and noticed it's slightly cheaper at the "lower" tiers but if I went to say..10M then the premiums would likely skyrocket and they would probably need to interview me out of hesitation to issue such a policy.

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serbeer
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Re: How much Umbrella Insurance coverage needed?

Post by serbeer » Tue Sep 27, 2016 1:14 pm

Just to point out, some type of assets are judment-proof per state-specific law.

For example, in IL where I live:
- 401Ks,Rollover IRA/Roth, and 529 plans are protected 100% (which is good reason btw to avoid comingling rollover IRA funds with new contributions)
- IRA/ROTH are protected up to $1M
- Houses are protected only up to $15K
- Taxable accounts are not protected at all
- Wage garnishment is limited to 15% of gross wages for above average wages

So, for the vast majority of people only the last 3 have to be covered with umbrella insurance. For the piece of mind IMO, best to carry "2x the amount of vulnerable assets" coverage, which is hopefully not all that much for vast majority of people. But keep in mind that since wage can be garnished as well, umbrella is not just for assets.

Most important aspect IMO is that umbrella keeps trial costs under control in case of trial since insurance company uses its own lawers on retainer.

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sunil_gulati
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Re: How much Umbrella Insurance coverage needed?

Post by sunil_gulati » Tue Sep 27, 2016 3:33 pm

Good info. Was looking to buy umbrella insurance and didn't it it from this angle.
What is a good company to buy umbrella insurance from ? My auto insurance provider in NJM and for real estate, its State farm.

Recommendations please

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Re: How much Umbrella Insurance coverage needed?

Post by Call_Me_Op » Tue Sep 27, 2016 4:22 pm

KlangFool wrote: For normal people, 2 X assets seem like a good idea. The insurance company will be more motivated to protect you since they have more to lose than you do.
Why would the insurance company care about their liability in comparison to your liability? All they care about is their liability.
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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Tue Sep 27, 2016 4:30 pm

Call_Me_Op wrote:
KlangFool wrote: For normal people, 2 X assets seem like a good idea. The insurance company will be more motivated to protect you since they have more to lose than you do.
Why would the insurance company care about their liability in comparison to your liability? All they care about is their liability.
Call_Me_Op,

They have more to lose since their liability is higher. If it is the same, they may get you to settle.

KlangFool

orlandoman
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Re: How much Umbrella Insurance coverage needed?

Post by orlandoman » Tue Sep 27, 2016 4:31 pm

MikeT wrote:If you drive into a school bus and kill 3 kids and paralyze 2, and the lawsuits = $5 million, should you have a $5 million umbrella?
Having an umbrella policy 'may' afford you the benefit of have an insurance company attorney. As an example, in the senario you mentioned, if you had a $1 million dollar policy & it was evident that you were completely at fault, the ins. company might just pay the $1 million policy limit rather that go through the effort/expense of attempting to get an award of less that the policy limit.
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Re: How much Umbrella Insurance coverage needed?

Post by Dottie57 » Tue Sep 27, 2016 4:47 pm

KlangFool wrote:
MikeT wrote:Should the umbrella amount = your assets or the maximum potential claim you might ever face?

For example, if you have $1 million in assets, should the umbrella = $1 million.

Or

If you drive into a school bus and kill 3 kids and paralyze 2, and the lawsuits = $5 million, should you have a $5 million umbrella?

From a practical standpoint, there's really no upper-limit on a jury award so trying to ensure for a maximum verdict seems hard to do.

Thanks,

Mike
MikeT,

For normal people, 2 X assets seem like a good idea. The insurance company will be more motivated to protect you since they have more to lose than you do.

KlangFool
I just bought about 2 times retirement funds. I am relieved.

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Re: How much Umbrella Insurance coverage needed?

Post by R2D2 » Tue Sep 27, 2016 5:06 pm

t60 wrote:Out of curiosity how much more does additional insurance cost? I recently changed my limits and noticed it's slightly cheaper at the "lower" tiers but if I went to say..10M then the premiums would likely skyrocket and they would probably need to interview me out of hesitation to issue such a policy.
Yeah, I'm hoping someone can explain this to me too.

There's no way that (for example) $2M in coverage should cost more than double what $1M in coverage costs. In fact, it should cost *much* less than double. In the worst case, it pays out twice as much, and you only reach that worst case if the judgment is at or over $2M.

But for some reason, when you get to high limits, this rule seems to go out the window. Get a quote for $1M, $5M, and $10M. You'll be astonished at how high the $10M quote is. I think that even the $5M quote will be way out of line with the $1M quote. (I was looking at this with a friend of mine and I was dumbfounded.)

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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Tue Sep 27, 2016 5:34 pm

R2D2 wrote:
t60 wrote:Out of curiosity how much more does additional insurance cost? I recently changed my limits and noticed it's slightly cheaper at the "lower" tiers but if I went to say..10M then the premiums would likely skyrocket and they would probably need to interview me out of hesitation to issue such a policy.
Yeah, I'm hoping someone can explain this to me too.

There's no way that (for example) $2M in coverage should cost more than double what $1M in coverage costs. In fact, it should cost *much* less than double. In the worst case, it pays out twice as much, and you only reach that worst case if the judgment is at or over $2M.

But for some reason, when you get to high limits, this rule seems to go out the window. Get a quote for $1M, $5M, and $10M. You'll be astonished at how high the $10M quote is. I think that even the $5M quote will be way out of line with the $1M quote. (I was looking at this with a friend of mine and I was dumbfounded.)
R2D2,

It makes perfect sense to me.

A) There is a larger pool of people buying 1 million versus 5 million versus 10 million

B) People buying 1 million are less likely to claim versus 5 million versus 10 million

KlangFool

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Bogle_Feet
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Re: How much Umbrella Insurance coverage needed?

Post by Bogle_Feet » Tue Sep 27, 2016 7:06 pm

I have an umbrella policy equal to my net worth, including my home. That's what my agent said that most people get.

R2D2
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Re: How much Umbrella Insurance coverage needed?

Post by R2D2 » Tue Sep 27, 2016 7:47 pm

KlangFool wrote: R2D2,

It makes perfect sense to me.

A) There is a larger pool of people buying 1 million versus 5 million versus 10 million
Why would that matter?
KlangFool wrote: B) People buying 1 million are less likely to claim versus 5 million versus 10 million
KlangFool
Why? Sorry, you really lost me here.

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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Tue Sep 27, 2016 8:43 pm

R2D2 wrote:
KlangFool wrote: R2D2,

It makes perfect sense to me.

A) There is a larger pool of people buying 1 million versus 5 million versus 10 million
Why would that matter?
KlangFool wrote: B) People buying 1 million are less likely to claim versus 5 million versus 10 million
KlangFool
Why? Sorry, you really lost me here.
R2D2,

http://finance.zacks.com/risk-pooling-i ... -1890.html

The basic concept of risk pooling in insurance.
https://dqydj.com/net-worth-in-the-unit ... -centiles/

1) The number of people needing 1 million versus 5 million versus 10 million umbrella insurance does not go down linearly. It goes down exponentially.

For example, 10+% household has 1 million assets. The amount of household with 5 million assets is not 2+%

2) People that need 5 million and 10 million umbrella insurance are not normal people. Hence, they are more likely to be sued and claimed.

KlangFool

R2D2
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Re: How much Umbrella Insurance coverage needed?

Post by R2D2 » Tue Sep 27, 2016 8:54 pm

KlangFool wrote: 1) The number of people needing 1 million versus 5 million versus 10 million umbrella insurance does not go down linearly. It goes down exponentially.

For example, 10+% household has 1 million assets. The amount of household with 5 million assets is not 2+%

2) People that need 5 million and 10 million umbrella insurance are not normal people. Hence, they are more likely to be sued and claimed.

KlangFool
#2 is an interesting point. I think that might be the entire problem.

As for #1, I think the function you're thinking of drops like 1/sqrt(n), so I'm not sure this is a huge deal. In any case, all the liabilities get mixed into one pool (and then implicitly divided among the shareholders). There's no reason to separately manage the expectation/stdev (or whatever) of the $1M claim pool and the $5m claim pool. None of these are a big deal for the large insurance company (I think).

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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Tue Sep 27, 2016 9:00 pm

R2D2 wrote:
KlangFool wrote: 1) The number of people needing 1 million versus 5 million versus 10 million umbrella insurance does not go down linearly. It goes down exponentially.

For example, 10+% household has 1 million assets. The amount of household with 5 million assets is not 2+%

2) People that need 5 million and 10 million umbrella insurance are not normal people. Hence, they are more likely to be sued and claimed.

KlangFool
#2 is an interesting point. I think that might be the entire problem.

As for #1, I think the function you're thinking of drops like 1/sqrt(n), so I'm not sure this is a huge deal. In any case, all the liabilities get mixed into one pool (and then implicitly divided among the shareholders). There's no reason to separately manage the expectation/stdev (or whatever) of the $1M claim pool and the $5m claim pool. None of these are a big deal for the large insurance company (I think).
R2D2,

Why not? They could be profitable at $X at 1 million with a large pool but not at $5X at 5 million with a small pool. And, it might be loss leader too. They hope to get you at 1 million and upsell you later to 2 million or more.

KlangFool

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Re: How much Umbrella Insurance coverage needed?

Post by R2D2 » Tue Sep 27, 2016 9:10 pm

KlangFool wrote: Why not? They could be profitable at $X at 1 million with a large pool but not at $5X at 5 million with a small pool.
Because that would be mental accounting at a corporate level. Ignoring the adverse selection effect you mentioned (which is a really good point), then if a $X premium at $1M has positive expectation, then so does a $5X premium at a $5M limit. The size of the pool doesn't affect expectation; it affects risk, and that risk should be evaluated at a firm-wide level.
KlangFool wrote:And, it might be loss leader too. They hope to get you at 1 million and upsell you later to 2 million or more.
That's an interesting point, and I hadn't thought of that. But considering how difficult it is to get some of these places to even quote you prices on bigger policies, I have trouble believing this. Still, my sample could be skewed.

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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Tue Sep 27, 2016 9:15 pm

R2D2 wrote:
KlangFool wrote: Why not? They could be profitable at $X at 1 million with a large pool but not at $5X at 5 million with a small pool.
Because that would be mental accounting at a corporate level. Ignoring the adverse selection effect you mentioned (which is a really good point), then if a $X premium at $1M has positive expectation, then so does a $5X premium at a $5M limit. The size of the pool doesn't affect expectation; it affects risk, and that risk should be evaluated at a firm-wide level.
R2D2,

You assume that but it may not be true.

KlangFool

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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Tue Sep 27, 2016 9:17 pm

R2D2 wrote:
That's an interesting point, and I hadn't thought of that. But considering how difficult it is to get some of these places to even quote you prices on bigger policies, I have trouble believing this. Still, my sample could be skewed.
R2D2,

Bigger is relative. You probably could get 1 million, 2 million, and 3 million policy easily. After a threshold, it gets hard.

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Re: How much Umbrella Insurance coverage needed?

Post by HIinvestor » Tue Sep 27, 2016 9:20 pm

It is worthwhile to ask for quotes for $1mm, $2mm and $3mm in coverage if you want an umbrella policy and attempting to decide which one is your "sweet spot." For us, the premium was only slightly higher for $2nm than $1mm, so we got that.

You really are buying the services of the umbrella carrier's attorney to defend you if you are ever sued. Our assets do exceed $2mm, but we are comfortable that it's sufficient coverage.

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Re: How much Umbrella Insurance coverage needed?

Post by CajunDan » Tue Sep 27, 2016 9:57 pm

t60 wrote:Out of curiosity how much more does additional insurance cost? I recently changed my limits and noticed it's slightly cheaper at the "lower" tiers but if I went to say..10M then the premiums would likely skyrocket and they would probably need to interview me out of hesitation to issue such a policy.
Just increased my coverage from $1 to $2 million, also got a quote for $5 million, all from Mercury:

$1m, $303/year
$2m, $455/year
$5m, $909/year, and this is the max they offer, and it requires underwriting approval

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Re: How much Umbrella Insurance coverage needed?

Post by boglerdude » Tue Sep 27, 2016 10:12 pm

BolderBoy wrote:I have a friend who did this and the judgment against future income even survived the defendant's bankruptcy
Could you explain what happened. Would be educational.

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Re: How much Umbrella Insurance coverage needed?

Post by Bogel0048 » Wed Sep 28, 2016 8:21 am

I have always had an umbrella policy with our longtime car and homeowners insurance company. As our savings grew I changed the policy limit from $1M to $2M to $3M. The cost is still under $400 per year. A few years ago, when our savings had grown well beyond those limits, I called and asked how much it would cost for a much higher limit. Although I was on the phone, I got the equivalent of a blank stare. The very nice woman explained to me that AMICA insurance does not even sell umbrella coverage at the level I was asking about.

I asked her if this was because they are suspicious anyone asking for so much coverage might have an unusual risk they probably should not cover anyway. She said no, the reason was that they are most familiar with actuarial risks associated with homeowner and automobile claims, and with related umbrella insurance in the range of $1-3M. Maybe she said they could go up to $5M, I don't remember. In any event, I got the very clear impression they just do not sell umbrella insurance at higher limit levels because they are in the homeowner and auto insurance business (also life insurance, although we don't buy that) and they want to "stick to their knitting", which is admirable as a general guide for any business.

I kept worrying for a while that I should have a higher level of umbrella coverage, but then I discovered, as another post above has noted, that in my state the first $200K of our house value is protected for my wife and me as a homestead exclusion and all of our retirement savings are also protected. Since half of our savings are in our retirement accounts I stopped worrying. Our heirs may suffer if our taxable savings get wiped out, but my wife and I will be fine.

I am also heartened by the other posts above which note that even with a lower limit of umbrella coverage we will have an insurance company attorney to advise and assist us if we do have an unfortunate liability experience that leads to a serious claim or lawsuit.
Last edited by Bogel0048 on Fri Sep 30, 2016 6:05 pm, edited 1 time in total.

MikeT
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Re: How much Umbrella Insurance coverage needed?

Post by MikeT » Wed Sep 28, 2016 1:31 pm

My auto & home policy is with Travelers Insurance.

For reference, my auto policy liability is $500k and costs $1500/year.

Umbrella:
$1 million costs $251 /year
$2 million costs $439 /year
$3 million costs $565 /year
$5 million costs $715/year

I picked $2 million not because of vulnerable assets but rather to protect from wage garnishments

QUESTION: if I lowered my auto limites from $500->$300 , would the umbrella cost increase because it's more likely to be invoke?

Thx
Mike

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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Wed Sep 28, 2016 1:36 pm

MikeT wrote:My auto & home policy is with Travelers Insurance.

For reference, my auto policy liability is $500k and costs $1500/year.

Umbrella:
$1 million costs $251 /year
$2 million costs $439 /year
$3 million costs $565 /year
$5 million costs $715/year

I picked $2 million not because of vulnerable assets but rather to protect from wage garnishments

QUESTION: if I lowered my auto limites from $500->$300 , would the umbrella cost increase because it's more likely to be invoke?

Thx
Mike
MikeT,

<<QUESTION: if I lowered my auto limites from $500->$300 ,>>

What makes you think that you are allowed to do that? When I bought my umbrella insurance, the provider told me EXACTLY the limit on my auto and house insurance. I use the same provider for all 3 insurances.

KlangFool

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Re: How much Umbrella Insurance coverage needed?

Post by DaftInvestor » Wed Sep 28, 2016 2:08 pm

MikeT wrote:
QUESTION: if I lowered my auto limites from $500->$300 , would the umbrella cost increase because it's more likely to be invoke?


Mike
To KlangFool's point - I've had two different Umbrella policies and BOTH required me to hold my auto limits high in order to have a policy with them. (they weren't through the same company but required a copy of the auto-policy) so the quotes you got may require you to have the higher limit on auto.

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Re: How much Umbrella Insurance coverage needed?

Post by MikeT » Wed Sep 28, 2016 2:11 pm

I was thinking maybe the umbrella requires minimum coverage from the primary policy.

However, I have insurance in excess of the minimum and wasn't sure if that was already factored into the pricing of the umbrella.

When I asked Travelers, the person didn't seem sure and I was on my lunch break so didn't have time to explore further.


Mike

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Re: How much Umbrella Insurance coverage needed?

Post by FrugalInvestor » Wed Sep 28, 2016 2:21 pm

Bogle_Feet wrote:I have an umbrella policy equal to my net worth, including my home. That's what my agent said that most people get.
This is a good discussion. I have found that agents usually justify recommended coverages by saying "that's what most people do" which isn't helpful at all. For what reasons do most people buy that amount of coverage and are they valid?
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Re: How much Umbrella Insurance coverage needed?

Post by DaftInvestor » Wed Sep 28, 2016 2:22 pm

MikeT wrote:I was thinking maybe the umbrella requires minimum coverage from the primary policy.

However, I have insurance in excess of the minimum and wasn't sure if that was already factored into the pricing of the umbrella.

When I asked Travelers, the person didn't seem sure and I was on my lunch break so didn't have time to explore further.


Mike
As I think about it I recall one of them wanted the higher auto limits due to me having "inexperienced" drivers in the house so your case might be different and also, since I recently re-priced my home-owners and umbrella I just looked through all the quotes and paperwork I received. One of them was quoting an extra $130 per year on a $1M policy IF I had lower auto liability limits. (the items that drove my umbrella rates higher was having 3 cars and two "inexperienced operators" - all quotes were extra with these parameters).

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Re: How much Umbrella Insurance coverage needed?

Post by boglerdude » Wed Sep 28, 2016 10:56 pm

Coverage usually stacks so it might cost less to increase underlying rather than buy more umbrella.

Get a dash cam which will either absolve you of being at fault or will at least show you weren't texting and driving, etc. The sorts of things juries get angry about.

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Re: How much Umbrella Insurance coverage needed?

Post by MikeT » Fri Sep 30, 2016 11:43 am

Of course if a dash-cam showed I was at fault, that could work against me :-)

Mike

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Re: How much Umbrella Insurance coverage needed?

Post by KlangFool » Fri Sep 30, 2016 11:51 am

MikeT wrote:Of course if a dash-cam showed I was at fault, that could work against me :-)

Mike
MikeT,

If for whatever reason, somebody injured due to your fault, won't you want them to be taken care of? Umbrella insurance lets you do that without bankrupting you in the process.

Umbrella insurance serves 2 purposes:

A) Protect you when you are not at fault.

B) Compensate the other party when you are at fault without financially ruined you.

KlangFool

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Re: How much Umbrella Insurance coverage needed?

Post by MikeT » Fri Sep 30, 2016 11:59 am

ok, when you say it that way, you are completely right !

Mike

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Re: How much Umbrella Insurance coverage needed?

Post by Grt2bOutdoors » Fri Sep 30, 2016 12:17 pm

MikeT wrote:I was thinking maybe the umbrella requires minimum coverage from the primary policy.

However, I have insurance in excess of the minimum and wasn't sure if that was already factored into the pricing of the umbrella.

When I asked Travelers, the person didn't seem sure and I was on my lunch break so didn't have time to explore further.


Mike
My umbrella company told me coverage works like this : homeowners liability and auto liability will cover first in the event of a settlement, if there is any residual payment due, it will then come from umbrella coverage. Therefore, if you purchase $1MM umbrella and already have existing liability coverage of $500K and $500K, you are now covered for $2MM. Anything after that comes from your assets and if need be, wage garnishment.
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Re: How much Umbrella Insurance coverage needed?

Post by boglephreak » Fri Sep 30, 2016 3:53 pm

i have $2 million. $1 million was basically free (GEICO gives a rebate on auto insurance if you have umbrella), and $2 million wasnt that much more than $1 million. the real cost is that i had to increase my insurance for my rental properties, my home and auto to make sure that you meet minimums. i am not sure what that cost was, but its not negligible. however, in litigation driven California where i live, it gives me comfort.

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Re: How much Umbrella Insurance coverage needed?

Post by neodoc » Fri Sep 30, 2016 4:10 pm

serbeer wrote:Just to point out, some type of assets are judment-proof per state-specific law.

For example, in IL where I live:
- 401Ks,Rollover IRA/Roth, and 529 plans are protected 100% (which is good reason btw to avoid comingling rollover IRA funds with new contributions)
- IRA/ROTH are protected up to $1M
- Houses are protected only up to $15K
- Taxable accounts are not protected at all
- Wage garnishment is limited to 15% of gross wages for above average wages

So, for the vast majority of people only the last 3 have to be covered with umbrella insurance. For the piece of mind IMO, best to carry "2x the amount of vulnerable assets" coverage, which is hopefully not all that much for vast majority of people. But keep in mind that since wage can be garnished as well, umbrella is not just for assets.

Most important aspect IMO is that umbrella keeps trial costs under control in case of trial since insurance company uses its own lawers on retainer.
Is there a website that has compiled state specific information for all of this? That would be very helpful in determining the needed coverage!

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Re: How much Umbrella Insurance coverage needed?

Post by Grt2bOutdoors » Fri Sep 30, 2016 5:01 pm

boglephreak wrote:i have $2 million. $1 million was basically free (GEICO gives a rebate on auto insurance if you have umbrella), and $2 million wasnt that much more than $1 million. the real cost is that i had to increase my insurance for my rental properties, my home and auto to make sure that you meet minimums. i am not sure what that cost was, but its not negligible. however, in litigation driven California where i live, it gives me comfort.
Where did you see they give a break for auto? I use Geico and I am not getting a multi line discount.
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serbeer
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Re: How much Umbrella Insurance coverage needed?

Post by serbeer » Fri Sep 30, 2016 6:17 pm

neodoc wrote:
serbeer wrote:Just to point out, some type of assets are judment-proof per state-specific law.

For example, in IL where I live:
- 401Ks,Rollover IRA/Roth, and 529 plans are protected 100% (which is good reason btw to avoid comingling rollover IRA funds with new contributions)
- IRA/ROTH are protected up to $1M
- Houses are protected only up to $15K
- Taxable accounts are not protected at all
- Wage garnishment is limited to 15% of gross wages for above average wages

So, for the vast majority of people only the last 3 have to be covered with umbrella insurance. For the piece of mind IMO, best to carry "2x the amount of vulnerable assets" coverage, which is hopefully not all that much for vast majority of people. But keep in mind that since wage can be garnished as well, umbrella is not just for assets.

Most important aspect IMO is that umbrella keeps trial costs under control in case of trial since insurance company uses its own lawers on retainer.
Is there a website that has compiled state specific information for all of this? That would be very helpful in determining the needed coverage!
Yes, though they are not comprehensive, for example
http://www.assetprotectionsociety.org/s ... tion-laws/
https://www.legalconsumer.com/bankruptcy/laws/

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Re: How much Umbrella Insurance coverage needed?

Post by MikeT » Fri Sep 30, 2016 6:26 pm

I remain truly impressed with the high quality and quantity of answers in this forum @serbeer

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Nicolas
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Re: How much Umbrella Insurance coverage needed?

Post by Nicolas » Fri Sep 30, 2016 8:04 pm

Bogle_Feet wrote:I have an umbrella policy equal to my net worth, including my home. That's what my agent said that most people get.
But the umbrella kicks in after the amount of your underlying coverage is exhausted. So if you had 500K in underlying coverage for example, and you have a 2M net worth, you only need 1.5M to bring you up to 2M. So your umbrella doesn't need to cover the full amount.
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Re: How much Umbrella Insurance coverage needed?

Post by flyingaway » Fri Sep 30, 2016 8:13 pm

Question: Even if 401(k) is protected from lawsuits, if there is a judgement against your future income, will the withdraws from 401(k) be subject to the judgement?

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bostondan
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Re: How much Umbrella Insurance coverage needed?

Post by bostondan » Fri Sep 30, 2016 9:09 pm

I have never quite understood why we choose net worth as the amount of coverage that is appropriate. Do people often attempt to get a person's net worth with a lawsuit?

If that is the case, if a person has a net worth of $5 million and umbrella insurance of $5 million, why wouldn't the plaintiff sue for $10 million?

If my net worth is $100 million, but I do not do anything high risk, is it really likely that anybody will sue me for $100 million? That would be a pretty obscene lawsuit.
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Re: How much Umbrella Insurance coverage needed?

Post by boglephreak » Fri Sep 30, 2016 9:23 pm

Grt2bOutdoors wrote:
boglephreak wrote:i have $2 million. $1 million was basically free (GEICO gives a rebate on auto insurance if you have umbrella), and $2 million wasnt that much more than $1 million. the real cost is that i had to increase my insurance for my rental properties, my home and auto to make sure that you meet minimums. i am not sure what that cost was, but its not negligible. however, in litigation driven California where i live, it gives me comfort.
Where did you see they give a break for auto? I use Geico and I am not getting a multi line discount.
thats what they told me. you may want to ask them.

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Re: How much Umbrella Insurance coverage needed?

Post by TOJ » Fri Sep 30, 2016 9:33 pm

Geico seemed to finally update their site so that you can get a quote online instead of having to call. And you see it next to your auto policy on the same page.

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Re: How much Umbrella Insurance coverage needed?

Post by LeeMKE » Sat Oct 01, 2016 1:11 am

I carried 1X net worth until I married into step children who were teenagers and I doubled it. Same goes if I still had rental property, 2X net worth.

No magic to my calculation, just what would let me sleep at night, based on my potential liabilities.
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Re: How much Umbrella Insurance coverage needed?

Post by serbeer » Sun Oct 02, 2016 9:28 am

flyingaway wrote:Question: Even if 401(k) is protected from lawsuits, if there is a judgement against your future income, will the withdraws from 401(k) be subject to the judgement?
Ah, this is indeed a very good question I have not considered previously. And the answer, alas, appears to be that yes, it is possible:
http://www.nolo.com/legal-encyclopedia/ ... ounts.html
Distributions From a Retirement Plan
While a ERISA plan is generally protected, the distributions made to you may not be. At least one federal court has held that your ERISA benefits may no longer be protected once they leave the plan and are distributed to you. For example, if you deposit the distributions you receive from a retirement plan into a regular checking account, then a judgment creditor may be able to attach those funds in the account. Of course, you may still be able to protect those funds by using other exemptions available in your state. (To learn about other types of exemptions that may protect your income and assets, see Using Exemptions to Protect Property from Judgment Creditors.)

There is an exception to this rule. If you roll over the distributions into another qualified plan, then they may remain protected.

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Re: How much Umbrella Insurance coverage needed?

Post by JoinToday » Mon Oct 31, 2016 5:28 pm

bostondan wrote:I have never quite understood why we choose net worth as the amount of coverage that is appropriate. Do people often attempt to get a person's net worth with a lawsuit?

If that is the case, if a person has a net worth of $5 million and umbrella insurance of $5 million, why wouldn't the plaintiff sue for $10 million?
.....
LeeMKE wrote:I carried 1X net worth until I married into step children who were teenagers and I doubled it. Same goes if I still had rental property, 2X net worth.

No magic to my calculation, just what would let me sleep at night, based on my potential liabilities.
What is someone suppose to do when their net worth is more than a few $M? My insurance company won't write policies greater than $3M, and will only increase current policy from $1M to $2M (this is probably a fraud protection issue). Auto is $1M. If someone has assets >$4M, do you just get the max ($3M umbrella +$1M auto), and accept that that is the best you can easily do? Or is it worth shopping for a company that provides $5M or more?
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Re: How much Umbrella Insurance coverage needed?

Post by Grt2bOutdoors » Mon Oct 31, 2016 7:00 pm

JoinToday wrote:
bostondan wrote:I have never quite understood why we choose net worth as the amount of coverage that is appropriate. Do people often attempt to get a person's net worth with a lawsuit?

If that is the case, if a person has a net worth of $5 million and umbrella insurance of $5 million, why wouldn't the plaintiff sue for $10 million?
.....
LeeMKE wrote:I carried 1X net worth until I married into step children who were teenagers and I doubled it. Same goes if I still had rental property, 2X net worth.

No magic to my calculation, just what would let me sleep at night, based on my potential liabilities.
What is someone suppose to do when their net worth is more than a few $M? My insurance company won't write policies greater than $3M, and will only increase current policy from $1M to $2M (this is probably a fraud protection issue). Auto is $1M. If someone has assets >$4M, do you just get the max ($3M umbrella +$1M auto), and accept that that is the best you can easily do? Or is it worth shopping for a company that provides $5M or more?
Chubb is a company that underwrites high ticket insurance, another may be Lloyd's. Visiting an insurance broker may be worth a visit, no one says you need to commit to it. The other thing you can easily do is to try and limit your activities to reduce the risk of suits, don't libel/slander someone, don't drink/drive under influence, etc. If you own a home, you can boost the liability coverage there, the total of your liability policy plus umbrella plus retirement accounts in an ERISA type account may be enough to keep your assets away from these types of claims.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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