Do you carry Umbrella Insurance?

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masonstone
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Do you carry Umbrella Insurance?

Post by masonstone » Sat Jun 08, 2019 7:03 am

I'm debating on the limit I should carry for Umbrella Insurance. What percentage of your net worth do you carry as umbrella insurance?

runner3081
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Re: Do you carry Umbrella Insurance?

Post by runner3081 » Sat Jun 08, 2019 7:19 am

> or equal to 100% of Net Worth is what we carry. At least to a reasonable amount.
Last edited by runner3081 on Sat Jun 08, 2019 7:20 am, edited 2 times in total.

MikeG62
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Re: Do you carry Umbrella Insurance?

Post by MikeG62 » Sat Jun 08, 2019 7:19 am

We carry $5 million in Umbrella coverage. I choose $5 million as the most reasonably affordable coverage we could get (annual premium of ~$1,000). I did look into getting $10 million once and the quote came back in excess of $3,000 per year. So I kept our coverage at $5 million. Coverage amount is really based upon the level I'd think realistically sufficient to settle a lawsuit brought against us (and not based upon our net worth which is above the coverage level).
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Chris K Jones
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Re: Do you carry Umbrella Insurance?

Post by Chris K Jones » Sat Jun 08, 2019 7:47 am

It is a bit more than 100% of net worth. MY rationale is same as previous poster. It is affordable and is an amount that insurance company would probably put up spirited defense and not just easily settle.

arsenalfan
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Re: Do you carry Umbrella Insurance?

Post by arsenalfan » Sat Jun 08, 2019 7:53 am

Yes, 100% of NW.
Risks are 7 rental properties, teenage drivers, probably lots of other unknowns.
Had to call and list the properties that the firm wasn't insuring already.
It is very cheap, and like all insurance hope to never use it.

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 7:55 am

Zero.

livesoft
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Re: Do you carry Umbrella Insurance?

Post by livesoft » Sat Jun 08, 2019 7:56 am

Since some assets and accounts are protected from being seized to award damages, net worth is not necessarily the number to work off of for coverage. Some folks also want to insure future income.

What does your insurance company suggest?

We have umbrella insurance.
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Sandtrap
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Re: Do you carry Umbrella Insurance?

Post by Sandtrap » Sat Jun 08, 2019 7:57 am

Yes.
Fairly inexpensive rider from our USAA package considering the size of coverage. 100+ %
IMHO there are no downsides unless you do not get enough.

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 7:58 am

Chris K Jones wrote:
Sat Jun 08, 2019 7:47 am
It is affordable and is an amount that insurance company would probably put up spirited defense and not just easily settle.
It doesn't matter whether the insurance company puts up a spirited defense or easily settles, the monetary result is the same to you. You may actually prefer the insurance company to easily settle so that the case does not drag out and you won't have to go through potentially invasive discovery and sit for a deposition and a potential trial.

Also, net worth is not the appropriate benchmark to determine coverage. Let's say you have a net worth of 1 million and coverage of 1 million, and in a worst case scenario there is a judgment against you for 1.5 million. Your liability insurer will pay up to 1 million (perhaps less if the coverage includes defense costs) and you will be on the hook for 500 thousand.
Last edited by mptfan on Sat Jun 08, 2019 8:35 am, edited 5 times in total.

noco-hawkeye
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Re: Do you carry Umbrella Insurance?

Post by noco-hawkeye » Sat Jun 08, 2019 8:06 am

Yes, roughly 100% of NW. Teen drivers, 2 dogs for extra risk. We did not add this policy until the house was paid off and NW started getting well above 1M.

Dandy
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Re: Do you carry Umbrella Insurance?

Post by Dandy » Sat Jun 08, 2019 8:09 am

Yes - about 2/3 of assets. Relatively low risk situation but should consider upping it.

Dottie57
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Re: Do you carry Umbrella Insurance?

Post by Dottie57 » Sat Jun 08, 2019 8:10 am

Chris K Jones wrote:
Sat Jun 08, 2019 7:47 am
It is a bit more than 100% of net worth. MY rationale is same as previous poster. It is affordable and is an amount that insurance company would probably put up spirited defense and not just easily settle.
I have 150% of net worth. Same reason.

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TomatoTomahto
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Re: Do you carry Umbrella Insurance?

Post by TomatoTomahto » Sat Jun 08, 2019 8:10 am

MikeG62 wrote:
Sat Jun 08, 2019 7:19 am
We carry $5 million in Umbrella coverage. I choose $5 million as the most reasonably affordable coverage we could get (annual premium of ~$1,000). I did look into getting $10 million once and the quote came back in excess of $3,000 per year. So I kept our coverage at $5 million. Coverage amount is really based upon the level I'd think realistically sufficient to settle a lawsuit brought against us (and not based upon our net worth which is above the coverage level).
Yup. Us also.
Okay, I get it; I won't be political or controversial. The Earth is flat.

abner kravitz
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Re: Do you carry Umbrella Insurance?

Post by abner kravitz » Sat Jun 08, 2019 8:15 am

Our umbrella insurance is about 25% of net worth. Worst case, we could probably get by with the funds we have that have ERISA protections and are shielded.

jebmke
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Re: Do you carry Umbrella Insurance?

Post by jebmke » Sat Jun 08, 2019 8:17 am

I carry the maximum they would write without going to underwriting. I think it is a $5M policy. I did not consider my net worth when I bought the original policy.
When you discover that you are riding a dead horse, the best strategy is to dismount.

KandT
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Re: Do you carry Umbrella Insurance?

Post by KandT » Sat Jun 08, 2019 8:25 am

Yep - Cheap insurance that covers a catastrophe. To me that's what insurance is for - a catastrophe.

I personally carry high deductibles and don't use my insurance for piddly things. I know people who are always saying "Does your insurance cover it?" for every windshield knick and ding. Those people pay really high premiums.

I talked to an insurance guy recently who said the companies all share that claims information on the backend.

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snackdog
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Re: Do you carry Umbrella Insurance?

Post by snackdog » Sat Jun 08, 2019 9:17 am

Primary around 10% and umbrella an additional 50% or so.

At some stage net worth gets high enough that it makes more sense to just hire good lawyers (if you ever need them) than try to keep umbrella coverage equal to net worth.

jebmke
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Re: Do you carry Umbrella Insurance?

Post by jebmke » Sat Jun 08, 2019 9:22 am

KandT wrote:
Sat Jun 08, 2019 8:25 am
windshield knick and ding.
My insurance company wants me to file a claim for small windshield nicks so they can dispatch someone to fix it before it widens and requires a complete replacement. As far as I know there is no deductible for this as I have never had to pay a dime to get a nick filled.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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TomatoTomahto
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Re: Do you carry Umbrella Insurance?

Post by TomatoTomahto » Sat Jun 08, 2019 9:27 am

snackdog wrote:
Sat Jun 08, 2019 9:17 am
Primary around 10% and umbrella an additional 50% or so.
At some stage net worth gets high enough that it makes more sense to just hire good lawyers (if you ever need them) than try to keep umbrella coverage equal to net worth.
What? Hired a good (or even mediocre) lawyer lately? My guess is that the “stage net worth gets high enough” is probably north of $50M. You are also a way bigger target then.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Sandtrap
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Re: Do you carry Umbrella Insurance?

Post by Sandtrap » Sat Jun 08, 2019 9:33 am

snackdog wrote:
Sat Jun 08, 2019 9:17 am
Primary around 10% and umbrella an additional 50% or so.

At some stage net worth gets high enough that it makes more sense to just hire good lawyers (if you ever need them) than try to keep umbrella coverage equal to net worth.
Quite the contrary.
The higher the net worth, (deep pockets), the higher the lawsuit, lawyers fees, and often, longer the lawsuit.
It is prudent to have more than enough umbrella insurance to cover all the costs of a long term lawsuit as well as the settlement amount over what insurance might or might not cover.
(Long term lawsuits with large estates can run many many years, sometimes seems like decades. :shock: )
Especially . . . if one has much more to lose than to gain by the annual savings on marginal or no umbrella coverage.
And, as "tomato" pointed out, the higher the net worth, the bigger the "target".

j :happy

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 9:40 am

Sandtrap wrote:
Sat Jun 08, 2019 9:33 am
And, as "tomato" pointed out, the higher the net worth, the bigger the "target".
Likewise, the higher the insurance coverage, the bigger the target and higher insurance makes someone a more attractive target than the same amount of net worth.
Last edited by mptfan on Sat Jun 08, 2019 9:41 am, edited 1 time in total.

HawkeyePierce
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Re: Do you carry Umbrella Insurance?

Post by HawkeyePierce » Sat Jun 08, 2019 9:40 am

Currently zero. The majority of my assets are in retirement accounts, so they're afforded some amount of protection. I don't own a home either. When I buy a home and/or once I have significant assets outside my retirement accounts I'll look into buying a policy.

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Sandtrap
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Re: Do you carry Umbrella Insurance?

Post by Sandtrap » Sat Jun 08, 2019 10:00 am

mptfan wrote:
Sat Jun 08, 2019 9:40 am
Sandtrap wrote:
Sat Jun 08, 2019 9:33 am
And, as "tomato" pointed out, the higher the net worth, the bigger the "target".
Likewise, the higher the insurance coverage, the bigger the target and higher insurance makes someone a more attractive target than the same amount of net worth.
True also.
I think law firms on both sides of a suit evaluate how big the fish is and how much they want to put out to "land that fish". :shock:

Heard in the past:
You can sue for a ham sandwich but can you collect?

j

Daryl
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Re: Do you carry Umbrella Insurance?

Post by Daryl » Sat Jun 08, 2019 10:16 am

mptfan wrote:
Sat Jun 08, 2019 7:58 am
Chris K Jones wrote:
Sat Jun 08, 2019 7:47 am
It is affordable and is an amount that insurance company would probably put up spirited defense and not just easily settle.
It doesn't matter whether the insurance company puts up a spirited defense or easily settles, the monetary result is the same to you. You may actually prefer the insurance company to easily settle so that the case does not drag out and you won't have to go through potentially invasive discovery and sit for a deposition and a potential trial.

Also, net worth is not the appropriate benchmark to determine coverage. Let's say you have a net worth of 1 million and coverage of 1 million, and in a worst case scenario there is a judgment against you for 1.5 million. Your liability insurer will pay up to 1 million (perhaps less if the coverage includes defense costs) and you will be on the hook for 500 thousand.
It is worth noting that most claims up to $1.5M would be covered in their entirety by the combination of a $1M umbrella policy and the required underlying policy (for example, auto). I've read the terms of my policy and confirmed that defense costs do not erode policy limits.

I'll typically ask my agent from time to time about claims / loss activity that he is aware of. Some of his policy holders have had claims in excess of their primary auto limits. Nobody has yet exceeded the limits of their personal umbrella policy.

Premiums for my Umbrella policy are 0.03% of my net worth on an annual basis, which oddly enough, is roughly the weighted average expense ratio of my investments. Coverage limits are significantly more than my net worth.

miles monroe
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Re: Do you carry Umbrella Insurance?

Post by miles monroe » Sat Jun 08, 2019 10:18 am

a couple hundred bucks to protect a million dollars is the best value you can get in the insurance game.

crazy not to have it.

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Re: Do you carry Umbrella Insurance?

Post by MikeG62 » Sat Jun 08, 2019 10:27 am

HawkeyePierce wrote:
Sat Jun 08, 2019 9:40 am
Currently zero. The majority of my assets are in retirement accounts, so they're afforded some amount of protection. I don't own a home either. When I buy a home and/or once I have significant assets outside my retirement accounts I'll look into buying a policy.
You are exposed beyond the level of your sheltered assets. Your wages can be garnished.

I’d never advise anyone I know to skip Umbrella insurance. Both of my adult daughters (ages 25 and 23) have a policy at my suggestion.

It’s the cheapest form of insurance you can purchase.
Real Knowledge Comes Only From Experience

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 10:29 am

Daryl wrote:
Sat Jun 08, 2019 10:16 am
I'll typically ask my agent from time to time about claims / loss activity that he is aware of. Some of his policy holders have had claims in excess of their primary auto limits.
Having a "claim" in excess of your primary limits and having to actually *pay* more than your primary limits are not the same thing. In my more than 20 years of litigation experience, and handling literally hundreds of liability lawsuits, I can only think of *one* case where the insured had to come out of pocket to settle a claim above the policy limits. It is a very rare occurrence.

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AllieTB1323
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Re: Do you carry Umbrella Insurance?

Post by AllieTB1323 » Sat Jun 08, 2019 10:30 am

We carry 5M.

TravelforFun
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Re: Do you carry Umbrella Insurance?

Post by TravelforFun » Sat Jun 08, 2019 10:35 am

Just $1 million.

So far, I've been losing at the insurance game. My claims on term life, healthcare, homeowner, car, long term care, and annuity range from 0% to a tiny percentage of the premiums I've paid the insurance companies. Oh wait! I guess I should count my blessings.

TravelforFun

montanagirl
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Re: Do you carry Umbrella Insurance?

Post by montanagirl » Sat Jun 08, 2019 10:40 am

About 200% of our net worth, which is low so we had to buy the minimum $1 mil policy.

It's really just a little more on each car and the house, so I don't really notice it.

HomeStretch
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Re: Do you carry Umbrella Insurance?

Post by HomeStretch » Sat Jun 08, 2019 10:43 am

My coverage limits for auto/house plus umbrella cover net worth which includes 401k and IRAs (which have certain protections in my state). Homes have low homestead protection amounts in my state.

But I am unclear (and need to ask broker) hypothetically if a large judgment against me could require a combination of the insurance coverages plus my net worth plus a wage garnishment to satisfy the judgment.

jebmke
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Re: Do you carry Umbrella Insurance?

Post by jebmke » Sat Jun 08, 2019 10:49 am

MikeG62 wrote:
Sat Jun 08, 2019 10:27 am
You are exposed beyond the level of your sheltered assets. Your wages can be garnished.
That is why I always carried a fairly hefty policy when our assets were modest but our incomes were high.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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FrugalInvestor
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Re: Do you carry Umbrella Insurance?

Post by FrugalInvestor » Sat Jun 08, 2019 10:53 am

We are retired and carry roughly net worth less protected assets.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

MikeG62
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Re: Do you carry Umbrella Insurance?

Post by MikeG62 » Sat Jun 08, 2019 10:54 am

mptfan wrote:
Sat Jun 08, 2019 10:29 am
Daryl wrote:
Sat Jun 08, 2019 10:16 am
I'll typically ask my agent from time to time about claims / loss activity that he is aware of. Some of his policy holders have had claims in excess of their primary auto limits.
Having a "claim" in excess of your primary limits and having to actually *pay* more than your primary limits are not the same thing. In my more than 20 years of litigation experience, and handling literally hundreds of liability lawsuits, I can only think of *one* case where the insured had to come out of pocket to settle a claim above the policy limits. It is a very rare occurrence.
mptfan, in most of these cases you reference did the defendant have an umbrella or was their a good mix of people who only had underlying auto or homeowners who did not have to come out of pocket for amounts in excess of their coverage limit?
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FrugalInvestor
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Re: Do you carry Umbrella Insurance?

Post by FrugalInvestor » Sat Jun 08, 2019 10:55 am

TravelforFun wrote:
Sat Jun 08, 2019 10:35 am
Just $1 million.

So far, I've been losing at the insurance game. My claims on term life, healthcare, homeowner, car, long term care, and annuity range from 0% to a tiny percentage of the premiums I've paid the insurance companies. Oh wait! I guess I should count my blessings.

TravelforFun
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IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 11:00 am

MikeG62 wrote:
Sat Jun 08, 2019 10:54 am
mptfan, in most of these cases you reference did the defendant have an umbrella or was their a good mix of people who only had underlying auto or homeowners who did not have to come out of pocket for amounts in excess of their coverage limit?
Neither. In my experience it is rare for an individual defendant to have umbrella insurance, and it is very rare for an individual defendant with insurance to pay out of pocket for amounts in excess of coverage.

Cyanide123
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Re: Do you carry Umbrella Insurance?

Post by Cyanide123 » Sat Jun 08, 2019 11:04 am

2M policy.

Net worth is negative due to student loans and just graduating from residency. Start making 400k+ in 1 month. The 2M is to protect future income, will increase as assets grow.

Cyanide123
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Re: Do you carry Umbrella Insurance?

Post by Cyanide123 » Sat Jun 08, 2019 11:06 am

FrugalInvestor wrote:
Sat Jun 08, 2019 10:55 am
TravelforFun wrote:
Sat Jun 08, 2019 10:35 am
Just $1 million.

So far, I've been losing at the insurance game. My claims on term life, healthcare, homeowner, car, long term care, and annuity range from 0% to a tiny percentage of the premiums I've paid the insurance companies. Oh wait! I guess I should count my blessings.

TravelforFun
I've always wanted to lose the insurance game.
I won the dental insurance game this year when I got my wisdom teeth removed. That's the only insurance game I'd like to win.

travellight
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Re: Do you carry Umbrella Insurance?

Post by travellight » Sat Jun 08, 2019 11:07 am

I carry about 25% of net worth. It’s the sweet spot for a good deal.
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quantAndHold
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Re: Do you carry Umbrella Insurance?

Post by quantAndHold » Sat Jun 08, 2019 11:16 am

mptfan wrote:
Sat Jun 08, 2019 11:00 am
MikeG62 wrote:
Sat Jun 08, 2019 10:54 am
mptfan, in most of these cases you reference did the defendant have an umbrella or was their a good mix of people who only had underlying auto or homeowners who did not have to come out of pocket for amounts in excess of their coverage limit?
Neither. In my experience it is rare for an individual defendant to have umbrella insurance, and it is very rare for an individual defendant with insurance to pay out of pocket for amounts in excess of coverage.
But then there was the friend I had who had to pay their own lawyer because they didn’t have an umbrella policy, and their insurance company was planning on going to court and take their chances on a lawsuit that was significantly above friend’s auto insurance policy limit. The lawyer they hired did manage to get a settlement that was below the policy limit, but it took 2 years of sleepless nights and $20k out of pocket in legal fees.

Friend has an umbrella policy now.

JackoC
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Re: Do you carry Umbrella Insurance?

Post by JackoC » Sat Jun 08, 2019 11:17 am

mptfan wrote:
Sat Jun 08, 2019 9:40 am
Sandtrap wrote:
Sat Jun 08, 2019 9:33 am
And, as "tomato" pointed out, the higher the net worth, the bigger the "target".
Likewise, the higher the insurance coverage, the bigger the target and higher insurance makes someone a more attractive target than the same amount of net worth.
True, but the 'target's is then the insurance co's money not yours. I don't know exactly how to quantify that trade off, but I don't see it as a strong argument against insurance.

Although I don't have umbrella, yet. I'm considering it. As of now rental properties are in an LLC. The LLC has standard $1mil/$2mil liability limits on its insurance on each property. But just the fact the building they live in exists tells some tenants you are 'rich' and they will try to manufacture claims against you. The previous owner of one building lost a multi $100k personal injury settlement with a tenant who claimed to fall down the stairs, although lost at least in part because she returned to her native country after selling the building to us and didn't contest it. But the tenants are highly unlikely to ever collect against someone in a foreign country. However 'coincidentally' another member of the same family then fell down the stairs after we owned the building and came after us. Ins co took care of it, though dumped us as client afterward, Warren Buffett, my hero again :annoyed . Anyway our LLC is highly likely to get sued time to time, the question being whether it's worth it to have personal umbrella in case LLC's limits are surpassed *and* the litigant can 'pierce the corporate veil' to come after me personally...but a personal umbrella policy might have a cut out for that since piercing the corp veil generally requires proving a high level of negligence by the management, me in this case.

I wonder what specific other cases people have in mind beside horrific car accidents and 'unknown unkowns'. But both those risks exist and I am considering getting it. In which case again sure in a sense* you may be throwing a piece of meat in front of the bear, but then it might give you a better chance to run away. :happy

*somewhat depends what you assume about plaintiff lawyer's ability to find out your insurance coverage v find out your total assets in deciding who it's worth going after or not.

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 11:32 am

JackoC wrote:
Sat Jun 08, 2019 11:17 am
*somewhat depends what you assume about plaintiff lawyer's ability to find out your insurance coverage v find out your total assets in deciding who it's worth going after or not.
In my state there is a statute that requires the insured and the insurer to provide insurance information upon request. By contrast, there is no legal requirement to provide information to anyone about your net worth upon request until after a judgment is entered against you. Therefore, it is much easier for a plaintiff's lawyer to find out about your million dollar umbrella insurance than it is to find out that you are a millionaire.
Last edited by mptfan on Sat Jun 08, 2019 11:41 am, edited 1 time in total.

wstrdg
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Re: Do you carry Umbrella Insurance?

Post by wstrdg » Sat Jun 08, 2019 11:34 am

“People can avoid personal liability claims if they don’t buy or own property, if they don’t have kids, if they or their kids don’t drive cars, if they don’t operate watercraft, or they don’t do anything that we interpret as living a normal life. If they do any of those things, they need umbrella insurance to protect their assets.”
http://www.roughnotes.com/rnmagazine/20 ... 03p068.htm

We mostly agree with this view of umbrella insurance. If you can afford the premium, you can't afford not to have it.

Here's a nice chart of insurance gaps that umbrellas could cover (not all umbrellas do) https://www.irmi.com/docs/default-sourc ... f?sfvrsn=4. It's from the Insurance for Dummies book -- this is the author's somewhat dated blog.

Mordoch
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Re: Do you carry Umbrella Insurance?

Post by Mordoch » Sat Jun 08, 2019 12:10 pm

HomeStretch wrote:
Sat Jun 08, 2019 10:43 am
My coverage limits for auto/house plus umbrella cover net worth which includes 401k and IRAs (which have certain protections in my state). Homes have low homestead protection amounts in my state.

But I am unclear (and need to ask broker) hypothetically if a large judgment against me could require a combination of the insurance coverages plus my net worth plus a wage garnishment to satisfy the judgment.
There certainly is nothing hypothetically preventing a judgement from being large enough to do this. A jury can ultimately come out with all kinds of verdicts and if you (or someone in household) hit someone with your car and severely hurt someone with a high enough income there could even be an economic justification for a high award. However the garnished wages concern is generally not much of an issue given you can discharge the money owed from the lawsuit verdict in bankruptcy baring a case involving drunk driving or basically a case involving exceptional intentional wrongdoing. (This is why the wage garnishment risk from lawsuits is generally overrated.)

However besides a lower risk of a jury happening to go that high, a high enough umbrella/regular insurance amount gives the plaintiff a huge incentive not to risk it. Instead of what should be a substantial amount of money, there is always the risk the jury will either rule you not liable so they end up with nothing or come back with a dollar verdict amount way lower than the insurance limits. (Significantly the jury does not know, and the lawyers are not allow to indicate, the amount of insurance coverage you have nor does the jury know your actual net assets amount.) On top of this plaintiff lawyers typically work on a contingency basis which gives them a massive incentive to settle for the umbrella insurance limit rather than risk getting way less if the case goes to trial. (Not to mention there is more work and costs for them if they do have to take the case to a trial.) Umbrella insurance also ensures that your insurance has sufficient skin in the game so they are going to hire lawyers who can put on the best defense for you if the case does go to trial. (One other detail is generally if the plaintiff offers to settle for the insurance limit, with you agreeing to this, and the insurance company ends up saying no and goes to trial, the insurance company ends up on the hook even for the amount above the insurance limit with a potential verdict. This is far less likely to happen if you have a low enough insurance coverage amount and an obviously high enough net worth.)
Last edited by Mordoch on Sat Jun 08, 2019 12:48 pm, edited 1 time in total.

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 12:29 pm

Mordoch wrote:
Sat Jun 08, 2019 12:10 pm
(One other detail is generally if the plaintiff offers to settle for the insurance limit, with you agreeing to this, and the insurance company ends up saying no and goes to trial, the insurance company ends up on the hook even for the amount above the insurance limit with a potential verdict. This is far less likely to happen if you have a low enough insurance coverage amount and an obviously high enough net work.)
In my state the insurance company can decide whether to settle or not and does not need your agreement. And your agreement is irrelevant to a bad faith claim against the insurance company for failing to settle within the policy limits. And the plaintiff will not likely know your net worth before trial.
Last edited by mptfan on Sat Jun 08, 2019 12:30 pm, edited 1 time in total.

HomeStretch
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Re: Do you carry Umbrella Insurance?

Post by HomeStretch » Sat Jun 08, 2019 12:30 pm

Mordoch wrote:
Sat Jun 08, 2019 12:10 pm
HomeStretch wrote:
Sat Jun 08, 2019 10:43 am
My coverage limits for auto/house plus umbrella cover net worth which includes 401k and IRAs (which have certain protections in my state). Homes have low homestead protection amounts in my state.

But I am unclear (and need to ask broker) hypothetically if a large judgment against me could require a combination of the insurance coverages plus my net worth plus a wage garnishment to satisfy the judgment.
There certainly is nothing hypothetically preventing a judgement from being large enough to do this. A jury can ultimately come out with all kinds of verdicts and if you (or someone in household) hit someone with your car and severely hurt someone with a high enough income there could even be an economic justification for a high award. However the garnished wages concern is generally not much of an issue given you can discharge the money owed from the lawsuit verdict in bankruptcy baring a case involving drunk driving or basically a case involving exceptional intentional wrongdoing. (This is why the wage garnishment risk from lawsuits is generally overrated.)

However besides a lower risk of a jury happening to go that high, a high enough umbrella/regular insurance amount gives the plaintiff a huge incentive not to risk it. Instead of what should be a substantial amount of money, there is always the risk the jury will either rule you not liable so they end up with nothing or come back with a dollar verdict amount way lower than the insurance limits. (Significantly the jury does not know, and the lawyers are not allow to indicate, the amount of insurance coverage you have nor does the jury know your actual net assets amount.) On top of this plaintiff lawyers typically work on a contingency basis which gives them a massive incentive to settle for the umbrella insurance limit rather than risk getting way less if the case goes to trial. (Not to mention there is more work and costs for them if they do have to take the case to a trial.) Umbrella insurance also ensures that your insurance has sufficient skin in the game so they are going to hire lawyers who can put on the best defense for you if the case does go to trial. (One other detail is generally if the plaintiff offers to settle for the insurance limit, with you agreeing to this, and the insurance company ends up saying no and goes to trial, the insurance company ends up on the hook even for the amount above the insurance limit with a potential verdict. This is far less likely to happen if you have a low enough insurance coverage amount and an obviously high enough net work.)
Thank you for all the good points/explanations!

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 12:33 pm

Mordoch wrote:
Sat Jun 08, 2019 12:10 pm
On top of this plaintiff lawyers typically work on a contingency basis which gives them a massive incentive to settle for the umbrella insurance limit rather than risk getting way less if the case goes to trial. (Not to mention there is more work and costs for them if they do have to take the case to a trial.) Umbrella insurance also ensures that your insurance has sufficient skin in the game so they are going to hire lawyers who can put on the best defense for you if the case does go to trial.
These incentives are also present even when you don't have umbrella insurance. It is the amount of insurance that creates the incentives, not whether the insurance is called "umbrella" or "primary."

HIinvestor
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Re: Do you carry Umbrella Insurance?

Post by HIinvestor » Sat Jun 08, 2019 12:38 pm

We have an umbrella policy of about $2mm. The insurer will hire and pay the fees for the attorneys plus any settlement under policy limits. The premiums we’ve paid over they years allow us to sleep well at night and are less than we’d have to pay if they are ever needed, even just to get a frivolous case dismissed.

mptfan
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Re: Do you carry Umbrella Insurance?

Post by mptfan » Sat Jun 08, 2019 12:44 pm

HIinvestor wrote:
Sat Jun 08, 2019 12:38 pm
The insurer will hire and pay the fees for the attorneys plus any settlement under policy limits. The premiums we’ve paid over they years allow us to sleep well at night and are less than we’d have to pay if they are ever needed, even just to get a frivolous case dismissed.
The same is true for primary insurance.

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Sandtrap
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Re: Do you carry Umbrella Insurance?

Post by Sandtrap » Sat Jun 08, 2019 12:47 pm

JackoC wrote:
Sat Jun 08, 2019 11:17 am
mptfan wrote:
Sat Jun 08, 2019 9:40 am
Sandtrap wrote:
Sat Jun 08, 2019 9:33 am
And, as "tomato" pointed out, the higher the net worth, the bigger the "target".
Likewise, the higher the insurance coverage, the bigger the target and higher insurance makes someone a more attractive target than the same amount of net worth.
True, but the 'target's is then the insurance co's money not yours. I don't know exactly how to quantify that trade off, but I don't see it as a strong argument against insurance.

Although I don't have umbrella, yet. I'm considering it. As of now rental properties are in an LLC. The LLC has standard $1mil/$2mil liability limits on its insurance on each property. But just the fact the building they live in exists tells some tenants you are 'rich' and they will try to manufacture claims against you. The previous owner of one building lost a multi $100k personal injury settlement with a tenant who claimed to fall down the stairs, although lost at least in part because she returned to her native country after selling the building to us and didn't contest it. But the tenants are highly unlikely to ever collect against someone in a foreign country. However 'coincidentally' another member of the same family then fell down the stairs after we owned the building and came after us. Ins co took care of it, though dumped us as client afterward, Warren Buffett, my hero again :annoyed . Anyway our LLC is highly likely to get sued time to time, the question being whether it's worth it to have personal umbrella in case LLC's limits are surpassed *and* the litigant can 'pierce the corporate veil' to come after me personally...but a personal umbrella policy might have a cut out for that since piercing the corp veil generally requires proving a high level of negligence by the management, me in this case.

I wonder what specific other cases people have in mind beside horrific car accidents and 'unknown unkowns'. But both those risks exist and I am considering getting it. In which case again sure in a sense* you may be throwing a piece of meat in front of the bear, but then it might give you a better chance to run away. :happy

*somewhat depends what you assume about plaintiff lawyer's ability to find out your insurance coverage v find out your total assets in deciding who it's worth going after or not.
Good points!
j :happy

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