Who really needs an umbrella insurance?

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BogleMelon
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Who really needs an umbrella insurance?

Post by BogleMelon »

For someone who has net worth less than 80K (including retirement accounts), do I really still need umbrella insurance?
P.S: I am renting an apartment in a building, so not responsible for any injuries happens anywhere outside my home. Auto liability is already $500K
Edit: I am a corporate cost accountant. I can not do much harm to any individuals or even business! In other words, I am no body :D
Last edited by BogleMelon on Thu May 11, 2017 1:12 pm, edited 1 time in total.
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Grt2bOutdoors
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Re: Who really needs an umbrella insurance?

Post by Grt2bOutdoors »

BogleMelon wrote:For someone who has net worth less than 80K (including retirement accounts), do I really still need umbrella insurance?
P.S: I am renting an apartment in a building, so not responsible for any injuries happens anywhere outside my home. Auto liability is already $500K
How much human capital do you have remaining? If you are 25 with an MD degree, guess what? I'll be coming after you for future earnings if you are negligent in your profession or you run me over with your car and leave me disabled. Your $500K liability policy? mmmph.....that's just enough for my lawyers fees...... :twisted:
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goingup
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Re: Who really needs an umbrella insurance?

Post by goingup »

Never thought about umbrella until assets were enough to be concerned. We were late 40s, mid-50s before it seemed necessary. Unless you feel like you're in a profession that puts a target on your back, I wouldn't spend the extra $200 a year until you have some assets to protect.
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Toons
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Re: Who really needs an umbrella insurance?

Post by Toons »

I know this goes against conventional wisdom on this board but,
I canceled mine a few years back.
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bigred77
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Re: Who really needs an umbrella insurance?

Post by bigred77 »

I have it. It's cheap. It's cheap for a reason. The chances of me ever using it are less than minuscule. It's basically black swan insurance.

I would forego it in your situation. Maybe when you have a few hundred thousand in networth, own a property, or are more established in life. Once you are shopping for home, auto, flood, and term life policies go ahead and throw in an umbrella policy in there just for fun.

If you can buy a million dollar umbrella policy for 200 bucks a year than that's 2 basis points (.02%). Anything that cheap is the insurance company telling you the odds of you utilizing that policy are unlikely.
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tadamsmar
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Re: Who really needs an umbrella insurance?

Post by tadamsmar »

goingup wrote:Never thought about umbrella until assets were enough to be concerned. We were late 40s, mid-50s before it seemed necessary. Unless you feel like you're in a profession that puts a target on your back, I wouldn't spend the extra $200 a year until you have some assets to protect.
Both you and the OP seem to think umbrella insurance covers professional liability. I don't think that is true. I know that my umbrella policy questionnaire asked nothing about my profession.

Could be an umbrella policy is worth more to someone who does not have homeowner's insurance, because that means you will have to pay your own legal bills if you get sued for something connected with your abode.

Also, it's just not just about your house and car. If you own canoe, kayak, or other watercraft then you could get sued.

As other's have pointed out, it protects your lifetime earning power, not just your current assets.

Does umbrella insurance have a positive return? No. That's not what makes insurance attractive.
Last edited by tadamsmar on Thu May 11, 2017 1:42 pm, edited 1 time in total.
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JDCarpenter
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Re: Who really needs an umbrella insurance?

Post by JDCarpenter »

Grt2bOutdoors wrote:...

How much human capital do you have remaining? ...
This. We had umbrella before we had much in the way of assets. Similarly, I recommended much higher than minimum liability limits for my son when he bought a clunker car when in law school... Most states allow a judgment to be enforced for 10 or more years--and they can be renewed/extended as well.

We are likely to reduce ours now that we are retiring with no pensions and nearly all of our assets in ERISA protected accounts. Only substantial thing to protect is likely the house if we are jointly at fault for something.

P.S. Agree with Tadamsmar as to the excess policies that I am familiar with; not for professional liability.
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flamesabers
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Re: Who really needs an umbrella insurance?

Post by flamesabers »

BogleMelon wrote:For someone who has net worth less than 80K (including retirement accounts), do I really still need umbrella insurance?
P.S: I am renting an apartment in a building, so not responsible for any injuries happens anywhere outside my home. Auto liability is already $500K
I recommend searching the forum for "umbrella insurance." You'll get a lot of threads on this topic.

From what I've read, there are numerous reasons to get umbrella insurance even when you don't have a huge amount of net worth. For instance, let's say you are involved in a car accident. Your car insurance doesn't cover all of the 'claims' the plaintiff has made against you. The plaintiff takes you to court. Because you don't have the money to get a good lawyer, you lose the case. In addition to the plaintiff taking a good chunk of your net worth, your future wages will be garnished to settle the plaintiff's claim.

Now if you had umbrella insurance in this sort of situation, none of this would have had to play out like this. Either the umbrella insurance would've settled the plaintiff's claims against you, or your insurer would've provided you with a good lawyer so that they (the insurer) wouldn't have to pay out $1 million or more to the plaintiff.

While the odds of something like this happening to you are very low, it would be a financial catastrophe for you if it did. Umbrella insurance protects your assets and wages against liability claims just as life insurance protects your family against financial hardship in case you have an untimely death.

Umbrella insurance is the most affordable insurance I've purchased. I got a $2 million umbrella policy from USAA for less then $200 a year.
tadamsmar wrote:
goingup wrote:Never thought about umbrella until assets were enough to be concerned. We were late 40s, mid-50s before it seemed necessary. Unless you feel like you're in a profession that puts a target on your back, I wouldn't spend the extra $200 a year until you have some assets to protect.
Both you and the OP seem to think umbrella insurance covers professional liability. I don't think that is true. I know that my umbrella policy questionnaire asked nothing about my profession.
My umbrella policy questionnaire did ask me if I am in a high-profile position (i.e. CEO, politician, president of a social media company, etc.).
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Re: Who really needs an umbrella insurance?

Post by bottlecap »

Some of it depends on your state law and your state's bankruptcy laws, but if you don't have assets or a large income, you might not need it because you may be judgment proof.

Answer the question, what would I do if I was at fault in an auto accident, killed someone, and were sued for more than my auto policy limits (say $1.5 mil more than the limits you have)?

If the answer is you 1) would pay the judgment because you have the money, 2) would file bankruptcy and discharge the debt because the law allows you to, and 3) would sleep well at night after having done 1 or 2, then you probably don't need umbrella coverage.

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goingup
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Re: Who really needs an umbrella insurance?

Post by goingup »

tadamsmar wrote:
goingup wrote:Never thought about umbrella until assets were enough to be concerned. We were late 40s, mid-50s before it seemed necessary. Unless you feel like you're in a profession that puts a target on your back, I wouldn't spend the extra $200 a year until you have some assets to protect.
Both you and the OP seem to think umbrella insurance covers professional liability. I don't think that is true. I know that my umbrella policy questionnaire asked nothing about my profession.
No, I wasn't thinking professional liability. I was thinking if the OP is high profile/high earner (despite having few assets), his future earnings could be figured into a lawsuit. From what the OP stated, I wouldn't think he needs umbrella.
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Re: Who really needs an umbrella insurance?

Post by wolf359 »

You don't need umbrella insurance if you're judgement proof. This doesn't mean that you won't get a court judgement against you. It means that there's nothing to collect, rendering the judgement ineffective. The problem is that you have to remain judgement proof for the rest of your life.

Generally, you are judgment proof if you:
- Don't own a home or have any bank or investment accounts
- Are unemployed or have a very low-paying job,
- Have a source of income is exempt from seizure by judgment creditors. Examples include unemployment benefits, social security, public assistance, child support, veteran's benefits, federal or civil service retirement benefits.
- A 401k and 403b is exempt from judgement. An IRA may not be, depending on your state.

If you're not judgement proof, but have little in the way of assets or income, then you're simply banking on the fact that it may not be worth the legal fees to sue you. Not everybody sues just to go after the big fish. Sometimes they sue because they feel wronged or angry or just want to make you pay for whatever they're suing about (even if it doesn't make financial sense.)

Factors which lower your likelihood of being sued include boring white collar desk jobs, not having a high profile position, not owning a car, boat, outdoor trampoline or pool, not doing a lot of driving, and not having a teenage driver in the house.

Your car is usually the greatest cause of lawsuits, but it is usually covered by your car insurance. Since the odds are low that lawsuits will exceed your car insurance, umbrella insurance rates are very cheap. It's generally worth it just as pure insurance, in case something happens that ruins your life.
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Re: Who really needs an umbrella insurance?

Post by BogleMelon »

wolf359 wrote:..
Thank you very much for that through explanation!
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Re: Who really needs an umbrella insurance?

Post by BogleMelon »

bottlecap wrote:..
Thanks!
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Re: Who really needs an umbrella insurance?

Post by BogleMelon »

Thanks everyone! I appreciate all the answers in here!
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Re: Who really needs an umbrella insurance?

Post by inbox788 »

Toons wrote:I know this goes against conventional wisdom on this board but,
I canceled mine a few years back.
:happy
Why? Low net worth? Low risk? Protected assets? Poor risk/reward?
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Phineas J. Whoopee
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Re: Who really needs an umbrella insurance?

Post by Phineas J. Whoopee »

In my view, liability insurance, including umbrella policies, has two functions, only the first of which has appeared in this thread:

1) It protects me and my assets, and future earnings, to the extent the insurance company mounts a vigorous defense on my behalf and even if unsuccessful, if my liability limit is sufficient to cover the case, perhaps in a negotiated settlement; and

2) It protects anybody who might be seriously harmed beyond the extent I can pay costs and compensation as a result of my actions.

I view them as having equal importance.

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Re: Who really needs an umbrella insurance?

Post by IMO »

Phineas J. Whoopee wrote:In my view, liability insurance, including umbrella policies, has two functions, only the first of which has appeared in this thread:

1) It protects me and my assets, and future earnings, to the extent the insurance company mounts a vigorous defense on my behalf and even if unsuccessful, if my liability limit is sufficient to cover the case, perhaps in a negotiated settlement; and

2) It protects anybody who might be seriously harmed beyond the extent I can pay costs and compensation as a result of my actions.

I view them as having equal importance.

PJW
Agreed.

Not that long ago, I almost hit someone in a crosswalk, he was in my blindspot and running across with bushes in the way. Would have been horrible for many reasons. From a financial standpoint, what if he were like many you find on this forum? High salaries with loss of earnings/future investment returns that would more than easily go above even most umbrella policies. Have teenage drivers at home?

Like many things in life such as term life insurance for someone under 60, statistically extremely unlikely a claim would be made on it. But one must choose within reason/cost what they are comfortably risking in life.
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Re: Who really needs an umbrella insurance?

Post by Ozonewanderer »

Insurance is ALWAYS a waste of money... until you need it.
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Re: Who really needs an umbrella insurance?

Post by F150HD »

BogleMelon wrote:For someone who has net worth less than 80K (including retirement accounts), do I really still need umbrella insurance?
P.S: I am renting an apartment in a building, so not responsible for any injuries happens anywhere outside my home. Auto liability is already $500K
Edit: I am a corporate cost accountant. I can not do much harm to any individuals or even business! In other words, I am no body :D
did you do a basic forum search on this? there was a lengthy thread on this topic few weeks back...
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Re: Who really needs an umbrella insurance?

Post by LeeMKE »

I added umbrella coverage when I married a guy with 2 teenage kids.
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Re: Who really needs an umbrella insurance?

Post by Ozonewanderer »

LeeMKE wrote:I added umbrella coverage when I married a guy with 2 teenage kids.
:D :D :D :D
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Re: Who really needs an umbrella insurance?

Post by ncbill »

Phineas J. Whoopee wrote:In my view, liability insurance, including umbrella policies, has two functions...

2) It protects anybody who might be seriously harmed beyond the extent I can pay costs and compensation as a result of my actions.
Absolutely.

Had a buddy in grad school whose relative decided to break into his flat to get the car keys.

Said relative wasn't paying attention, ran a stoplight, and IIRC permanently crippled another driver.

I'm guessing my buddy didn't have more than $300k total coverage, probably much less since they were a poor grad student.
(buddy did not want to turn in their very close relative for auto theft)

So I've had an umbrella policy for years, and since the kids are now driving I'll be upping it soon.
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Re: Who really needs an umbrella insurance?

Post by grouper »

I used to carry umbrella when I was working. Now that my wife and I are retired I don't. In Florida, where I live, my home is protected from legal judgements. So is my IRA, which is what we live off of along with SS. My cash accounts would be exposed but after I spend it down buying good legal representation there won't be that much they can get.
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Re: Who really needs an umbrella insurance?

Post by feh »

goingup wrote: Unless you feel like you're in a profession that puts a target on your back, I wouldn't spend the extra $200 a year until you have some assets to protect.
+1
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Re: Who really needs an umbrella insurance?

Post by CurlyDave »

25 and more years ago I was buying car insurance with a $500k liability limit. What has inflation been over the past 25 years?

I think judgements, especially on either coast, have gone up significantly over the years. So, instead of looking for higher limit auto policies, I just get an umbrella policy. Seems reasonable to me, and the yearly cost issue is lost in the noise of most budgets.

The excess coverage on other types of liability is just a little bonus, but as many point out, not really that likely to be used.
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Re: Who really needs an umbrella insurance?

Post by IMO »

CurlyDave wrote:25 and more years ago I was buying car insurance with a $500k liability limit. What has inflation been over the past 25 years?

I think judgements, especially on either coast, have gone up significantly over the years. So, instead of looking for higher limit auto policies, I just get an umbrella policy. Seems reasonable to me, and the yearly cost issue is lost in the noise of most budgets.

The excess coverage on other types of liability is just a little bonus, but as many point out, not really that likely to be used.
Has anyone been home watching TV on a weekday? The number of personal accident attorney commercials is nauseating. I think that's changed over the last 25 years.
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Re: Who really needs an umbrella insurance?

Post by abner kravitz »

IMO wrote:
CurlyDave wrote:25 and more years ago I was buying car insurance with a $500k liability limit. What has inflation been over the past 25 years?

I think judgements, especially on either coast, have gone up significantly over the years. So, instead of looking for higher limit auto policies, I just get an umbrella policy. Seems reasonable to me, and the yearly cost issue is lost in the noise of most budgets.

The excess coverage on other types of liability is just a little bonus, but as many point out, not really that likely to be used.
Has anyone been home watching TV on a weekday? The number of personal accident attorney commercials is nauseating. I think that's changed over the last 25 years.
I believe at least 50% of the local TV commercials in my area (Savannah GA metro) are for personal injury lawyers, and that could be a low estimate.
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Re: Who really needs an umbrella insurance?

Post by timmy »

No, it does not (typically cover) prof. related matters (ex: dentist while practicing dentistry).

Get it ... if you have enough assets or income to make you worth suing. The insurance is cheap.

I know two families (who were) entangled in lawsuits. 1) His kid (20 yo) was in a bad accident while driving 3 friends (car in parent's name). He did not have umbrella and wishes he had. It was a bad situation turned worse by being under insured. The legal fees alone ... 2) A single male sued by another individual. I don't know the nature of the lawsuit. However, since he had umbrella, it was not a big deal. The insurance took care of the legal costs and it sounds like there was a small settlement.
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Re: Who really needs an umbrella insurance?

Post by miamivice »

Grt2bOutdoors wrote:
BogleMelon wrote:For someone who has net worth less than 80K (including retirement accounts), do I really still need umbrella insurance?
P.S: I am renting an apartment in a building, so not responsible for any injuries happens anywhere outside my home. Auto liability is already $500K
How much human capital do you have remaining? If you are 25 with an MD degree, guess what? I'll be coming after you for future earnings if you are negligent in your profession or you run me over with your car and leave me disabled. Your $500K liability policy? mmmph.....that's just enough for my lawyers fees...... :twisted:
I don't think future earnings are a big factor in umbrella insurance. If the claim cost exceeds $500k, the OP can simply file for bankruptcy and in most cases the debt will be discharged. I think it is rare when bankruptcy court will not discharge a debt due to "future earning capacity".
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Re: Who really needs an umbrella insurance?

Post by LarryAllen »

Ozonewanderer wrote:Insurance is ALWAYS a waste of money... until you need it.
Well said.
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Re: Who really needs an umbrella insurance?

Post by LadyGeek »

I removed an off-topic post and reply. Please stay on-topic, which is to help the OP decide if umbrella insurance is needed.

Discussion on changing state insurance premiums (proposed legislation), or health care coverage provided by other countries is off-topic.
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Re: Who really needs an umbrella insurance?

Post by greg24 »

We own a home that has a creek running out back, along with a kid play structure. Those risks, combined with the possibility of someone slipping on an icy sidewalk, make a reasonably-priced umbrella policy a good thing to have.
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Re: Who really needs an umbrella insurance?

Post by Grt2bOutdoors »

miamivice wrote:
Grt2bOutdoors wrote:
BogleMelon wrote:For someone who has net worth less than 80K (including retirement accounts), do I really still need umbrella insurance?
P.S: I am renting an apartment in a building, so not responsible for any injuries happens anywhere outside my home. Auto liability is already $500K
How much human capital do you have remaining? If you are 25 with an MD degree, guess what? I'll be coming after you for future earnings if you are negligent in your profession or you run me over with your car and leave me disabled. Your $500K liability policy? mmmph.....that's just enough for my lawyers fees...... :twisted:
I don't think future earnings are a big factor in umbrella insurance. If the claim cost exceeds $500k, the OP can simply file for bankruptcy and in most cases the debt will be discharged. I think it is rare when bankruptcy court will not discharge a debt due to "future earning capacity".
And you speak from personal experience in being the defendant?
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Re: Who really needs an umbrella insurance?

Post by Grt2bOutdoors »

LarryAllen wrote:
Ozonewanderer wrote:Insurance is ALWAYS a waste of money... until you need it.
Well said.
Best time to have an umbrella is before and during a rainstorm, afterwards you are just a wet duck.
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Re: Who really needs an umbrella insurance?

Post by ychuck46 »

Grt2bOutdoors wrote:
BogleMelon wrote:For someone who has net worth less than 80K (including retirement accounts), do I really still need umbrella insurance?
P.S: I am renting an apartment in a building, so not responsible for any injuries happens anywhere outside my home. Auto liability is already $500K
How much human capital do you have remaining? If you are 25 with an MD degree, guess what? I'll be coming after you for future earnings if you are negligent in your profession or you run me over with your car and leave me disabled. Your $500K liability policy? mmmph.....that's just enough for my lawyers fees...... :twisted:

For everyone saying the original poster does not need an umbrella policy, reread Grt2bOutdoors comments again. He/she is spot on. I have it and besides the actual policy itself, the provider will fight tooth and nail in court not to have to pay it to a plaintiff. Get it and hope you never have to use it.
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Re: Who really needs an umbrella insurance?

Post by miamivice »

No, I stand behind what wrote. Except in unusual cases, auto accidents won't result in garnishing future wages. If the at-fault party can't pay for the damages and wages are garnished, then he/she can simply file for bankruptcy and discharge the debt. You generally can't become indebted for life because of an at-fault auto accident at 19.

After all, how many college students are walking around with $5 million umbrella policies?

This isn't to say that an umbrella policy is unnecessary. My feeling is that one should cover his/her assets with an umbrella policy but not an arbitrary value beyond his/her own assets.
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Re: Who really needs an umbrella insurance?

Post by NoleBlooded »

What happens if someone in the medical field (Dr, PA, etc) was sued beyond the limits of his malpractice policy? Would umbrella kick in? My understanding is that it doesn't. Basically, to my knowledge, it covers judgements in excess of limits on home/auto
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Re: Who really needs an umbrella insurance?

Post by Vanguard Fan 1367 »

I know someone who had an auto accident and had 100K of liability. This person lost a lot of sleep and had a lot of worry because there was the thought that there might be 250K or so owed to the plaintiff in the lawsuit. After several years of worry and hassle thankfully that case got settled for around 60k, not 250K but in my opinion this person would have been a lot happier with more than 100K of liability insurance. You have to decide what that is worth to you.
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Re: Who really needs an umbrella insurance?

Post by talzara »

NoleBlooded wrote:What happens if someone in the medical field (Dr, PA, etc) was sued beyond the limits of his malpractice policy? Would umbrella kick in? My understanding is that it doesn't. Basically, to my knowledge, it covers judgements in excess of limits on home/auto
The standard umbrella policy language excludes any liability that is caused by "providing or failing to provide any professional service." Medical malpractice is not covered by an umbrella policy.

You are right that "basically" all of the umbrella risk comes from the excess auto and homeowners liability coverage. Umbrella does "drop down" to provide first-dollar coverage for gaps in the auto and homeowners policies, but this is very rarely used.
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tadamsmar
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Re: Who really needs an umbrella insurance?

Post by tadamsmar »

One advantage I found with umbrella insurance it has helped me identify liability risks that I would have overlooked. Just filling out the form made me realized that an uninsured canoe that I never used and had loaned out was a liability risk. And the insurance firms automatic monitoring led to them informing me when I countersigned a loan on my adult daughter's car. My insurance company is RLI.

I guess you get this service if you have the smallest policy which is probably $1 million and might cost $100/year.
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Re: Who really needs an umbrella insurance?

Post by wilked »

Agree with the others... it is about $0.50 a day for me to carry $1MM of umbrella insurance. Most likely I never use it and that is just fine with me...
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