How much umbrella insurance?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
RonSwanson
Posts: 75
Joined: Sat Feb 22, 2020 7:15 pm

How much umbrella insurance?

Post by RonSwanson » Tue Jun 16, 2020 12:50 pm

I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year
$10M - $2700/year
$15M - $4700/year
$20M - $6700/year

I'm not sure how I can evaluate my risk in terms of activities and what I could be sued for and what the other side might be awarded.

We have kids, family cars, no boats, no pools, and an old house.

dpm321
Posts: 158
Joined: Sun Mar 04, 2012 6:04 pm

Re: How much umbrella insurance?

Post by dpm321 » Tue Jun 16, 2020 6:44 pm

Given the litigious society we live in, how much are you willing to lose?

Luckywon
Posts: 947
Joined: Tue Mar 28, 2017 10:33 am

Re: How much umbrella insurance?

Post by Luckywon » Tue Jun 16, 2020 6:49 pm

The amount of the umbrella does not limit how much you can lose. It does establish a buffer between a judgement and your personal assets. It also covers the cost of defending a claim. At $5 million, any insurance company is going to be all in on defending a claim against you.

Regardless of the size of your estate, IMO $5 million coverage looks like the best deal and, except for the one in a million occurrence, adequate protection.

HomeStretch
Posts: 4624
Joined: Thu Dec 27, 2018 3:06 pm

Re: How much umbrella insurance?

Post by HomeStretch » Tue Jun 16, 2020 7:01 pm

Any other risks like pets or a trampoline?

You don’t say how much your net worth is. Not all assets are at risk if a judgment is obtained against you (varies by state). As such, I don’t believe it’s necessary to insure your entire net worth but that’s a personal decision. The umbrella limit is in addition to the coverage limit on the underlying policies.

That said, your quote for $5 million is reasonable IMO. Our quote for $5 million is double but a chunk of that is multiple cars and drivers under age 25/26. I prefer to have my home/auto/umbrella policies with 1 insurer so there are no gaps in insurance or finger pointing between multiple insurers in the event of a claim.

Umbrella policies vary so be sure to read a Form of the Policy before binding coverage.

Disclaimer - I’m not an insurance expert.

todaysBob
Posts: 23
Joined: Mon Mar 02, 2020 6:39 pm

Re: How much umbrella insurance?

Post by todaysBob » Tue Jun 16, 2020 7:14 pm

I haven't done much research into Umbrella insurance and need to get to it soon.

Newbie question - Why does the net worth matter here? Say my net worth is also $5M and I have an umbrella for $5M, someone sues me for $10M.
Will I still be on the hook for $5M from my assets? If my net worth was $0, I would declare bankruptcy, right? So loss seems to be same in both the cases.

I am missing something.

oldfort
Posts: 1001
Joined: Mon Mar 02, 2020 8:45 pm

Re: How much umbrella insurance?

Post by oldfort » Tue Jun 16, 2020 7:15 pm

todaysBob wrote:
Tue Jun 16, 2020 7:14 pm
I haven't done much research into Umbrella insurance and need to get to it soon.

Newbie question - Why does the net worth matter here? Say my net worth is also $5M and I have an umbrella for $5M, someone sues me for $10M.
Will I still be on the hook for $5M from my assets? If my net worth was $0, I would declare bankruptcy, right? So loss seems to be same in both the cases.

I am missing something.
Yes, you’re correct.

WildBill
Posts: 613
Joined: Wed Jun 29, 2016 10:47 pm
Location: San Antonio, Texas

Re: How much umbrella insurance?

Post by WildBill » Tue Jun 16, 2020 7:19 pm

todaysBob wrote:
Tue Jun 16, 2020 7:14 pm
I haven't done much research into Umbrella insurance and need to get to it soon.

Newbie question - Why does the net worth matter here? Say my net worth is also $5M and I have an umbrella for $5M, someone sues me for $10M.
Will I still be on the hook for $5M from my assets? If my net worth was $0, I would declare bankruptcy, right? So loss seems to be same in both the cases.

I am missing something.
Howdy

With an umbrella policy you have bought legal representation for claims brought against you. You have also purchased the ability to mitigate damages to others you have caused.

$5 million buys lots of lawyers and mitigates lots of damage.Claims above$5 million, or even above $1 million are exceedingly rare. Which is why umbrella insurance is cheap.

One of the things that makes me sleep better.

W B

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

User avatar
MP123
Posts: 1497
Joined: Thu Feb 16, 2017 3:32 pm

Re: How much umbrella insurance?

Post by MP123 » Tue Jun 16, 2020 7:43 pm

It depends on what State you're in. $5M for $700/yr sounds like a a pretty good deal. When I priced higher coverage I found that many companies required underwriting/documentation for amounts over $3-5M which could be a hassle.

How many personal injury judgements in your State go over $5M?

Lee_WSP
Posts: 2631
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Tue Jun 16, 2020 7:56 pm

oldfort wrote:
Tue Jun 16, 2020 7:15 pm
todaysBob wrote:
Tue Jun 16, 2020 7:14 pm
I haven't done much research into Umbrella insurance and need to get to it soon.

Newbie question - Why does the net worth matter here? Say my net worth is also $5M and I have an umbrella for $5M, someone sues me for $10M.
Will I still be on the hook for $5M from my assets? If my net worth was $0, I would declare bankruptcy, right? So loss seems to be same in both the cases.

I am missing something.
Yes, you’re correct.
They’ll settle for the limits if you have no assets to go after

oldfort
Posts: 1001
Joined: Mon Mar 02, 2020 8:45 pm

Re: How much umbrella insurance?

Post by oldfort » Tue Jun 16, 2020 8:04 pm

Lee_WSP wrote:
Tue Jun 16, 2020 7:56 pm
oldfort wrote:
Tue Jun 16, 2020 7:15 pm
todaysBob wrote:
Tue Jun 16, 2020 7:14 pm
I haven't done much research into Umbrella insurance and need to get to it soon.

Newbie question - Why does the net worth matter here? Say my net worth is also $5M and I have an umbrella for $5M, someone sues me for $10M.
Will I still be on the hook for $5M from my assets? If my net worth was $0, I would declare bankruptcy, right? So loss seems to be same in both the cases.

I am missing something.
Yes, you’re correct.
They’ll settle for the limits if you have no assets to go after
If you're clearly judgment proof, they'll settle for the state minimum.

User avatar
peetsperk
Posts: 254
Joined: Wed Feb 04, 2015 4:02 pm

Re: How much umbrella insurance?

Post by peetsperk » Tue Jun 16, 2020 10:34 pm

Seems like you are in the ballpark. The annual premium in Iowa for $1M runs about $200, $2M for $300. Rates assume you have required auto and homeowner liability coverage already in place.

Mordoch
Posts: 412
Joined: Sat Mar 10, 2007 11:27 am

Re: How much umbrella insurance?

Post by Mordoch » Wed Jun 17, 2020 1:03 am

todaysBob wrote:
Tue Jun 16, 2020 7:14 pm
Newbie question - Why does the net worth matter here? Say my net worth is also $5M and I have an umbrella for $5M, someone sues me for $10M.
Will I still be on the hook for $5M from my assets? If my net worth was $0, I would declare bankruptcy, right? So loss seems to be same in both the cases.

I am missing something.
A key underlying point to keep in mind is that just because someone sues you for 10 million does not mean they are actually going to win that much. While the plaintiff and attorney generally will generally be able to establish your asset level and amount of umbrella insurance in such a situation, they would be absolutely prohibited from doing something like announcing the amount of each to the jury and encouraging them to therefore make the verdict that much.

Even if the plaintiff wins the case, there is a big risk the jury might actually come back with a verdict of say 1 million or less even in a case where it is pretty straightforward to prove severe damages. This means any remotely competent lawyer is going to be extremely reluctant to risk a jury trial instead of settling for 5 million, especially since there ordinarily are inherently higher at least effective costs in going to trial, and typically lawyers in this situation are on a contingency so this is how they will look at the situation. Even in a case where the plaintiff is paying and you're talking about something like a car accident with severe long term medical consequences or the death of a high income earner, the risk of ending up with 1 million or less instead of 5 million (or conceivably nothing) will be too much for most to actually be willing to take.

Notably, if the plaintiff offers to settle in that situation for 5 million and you agree to this as well (with the 5 million dollar umbrella policy), ordinarily that means if the insurance company says no to the settlement and the final verdict goes higher than this the insurance company is actually on the hook for the amount even above your coverage limit, although the insurer does have the option of still appealing such a verdict and try to for instance have it reduced in such a case. (This is a regulation designed to discourage certain behavior from insurance companies including dragging out lawsuits.)

By contrast, in a case with severe enough arguable damages where the person being sued has say only a 500k policy total but say 5 million+ in unprotected assets, it is distinctly possible a decision would be made to go to trial and after the person's assets if they won their case. In such a situation there also could be a problem among other issues that the insurance firm does not have the same level of motivation to as vigorously defend against the lawsuit as the person insured and that could conceivably influence the outcome of the case in some instances.

User avatar
peetsperk
Posts: 254
Joined: Wed Feb 04, 2015 4:02 pm

Re: How much umbrella insurance?

Post by peetsperk » Wed Jun 17, 2020 1:34 am

Is it possible that a large umbrella policy may also act as an incentive for a plaintiff attorney to sue a defendant? I ask this based on my own experience. A family member was severely injured by a negligent driver. Among the first things our attorney did was try to determine if the defendant had an umbrella policy?

Mordoch
Posts: 412
Joined: Sat Mar 10, 2007 11:27 am

Re: How much umbrella insurance?

Post by Mordoch » Wed Jun 17, 2020 1:45 am

peetsperk wrote:
Wed Jun 17, 2020 1:34 am
Is it possible that a large umbrella policy may also act as an incentive for a plaintiff attorney to sue a defendant? I ask this based on my own experience. A family member was severely injured by a negligent driver. Among the first things our attorney did was try to determine if the defendant had an umbrella policy?
While there might be a theoretical argument against something like having a 5 million dollar umbrella policy while having 1 million or less in assets, I think it is overrated as a concern under more ordinary circumstances.

Basically unless the defendant was truly "judgement proof" due to a lack of assets it seems obviously wildly far-fetched that the attorney would refuse to pursue that case if there was clear negligence and severe injuries involved. (In fact a lawyer advising clients not to pursue a case under such circumstances is the kind of thing that could conceivably get them in trouble with their state bar association.)

An obvious reason the lawyer would want to know is it makes obtaining an acceptable settlement amount before a trial significantly more likely. As noted there are reasons to risk avoiding a trial when possible, while an insurer which refuses a reasonable settlement offer given the facts of the case could find themselves on the hook beyond the set policy limits if the jury agrees to a higher damage amount which gives them a clear incentive to ordinarily avoid taking such a possible risk.
Last edited by Mordoch on Wed Jun 17, 2020 12:18 pm, edited 1 time in total.

User avatar
peetsperk
Posts: 254
Joined: Wed Feb 04, 2015 4:02 pm

Re: How much umbrella insurance?

Post by peetsperk » Wed Jun 17, 2020 1:50 am

Thank Mordochs.

User avatar
NavyIC3
Posts: 165
Joined: Wed Jan 10, 2018 2:18 pm

Re: How much umbrella insurance?

Post by NavyIC3 » Wed Jun 17, 2020 5:47 am

My umbrella policy increases Uninsured Motorists to $1M.

User avatar
TomatoTomahto
Posts: 10582
Joined: Mon Apr 11, 2011 1:48 pm

Re: How much umbrella insurance?

Post by TomatoTomahto » Wed Jun 17, 2020 7:03 am

RonSwanson wrote:
Tue Jun 16, 2020 12:50 pm
I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year. $140
$10M - $2700/year$270
$15M - $4700/year$313
$20M - $6700/year$335
I was surprised to see the cost per million of coverage go up as coverage increased (in blue in quote. This is not intuitive to me,and I would have expected the opposite. Is this usual? Is the reason adverse selection?
Okay, I get it; I won't be political or controversial. The Earth is flat.

User avatar
JPH
Posts: 1025
Joined: Mon Jun 27, 2011 8:56 pm

Re: How much umbrella insurance?

Post by JPH » Wed Jun 17, 2020 7:10 am

Is it necessary for the umbrella insurance to cover funds in retirement accounts?
While the moments do summersaults into eternity | Cling to their coattails and beg them to stay - Townes Van Zandt

User avatar
TomatoTomahto
Posts: 10582
Joined: Mon Apr 11, 2011 1:48 pm

Re: How much umbrella insurance?

Post by TomatoTomahto » Wed Jun 17, 2020 7:22 am

JPH wrote:
Wed Jun 17, 2020 7:10 am
Is it necessary for the umbrella insurance to cover funds in retirement accounts?
IANAL, and I’m arguably a simpleton, but my advice to my kids and to a lesser extent my wife is that future earnings are on the table to be garnished. We have a generous umbrella policy.
Okay, I get it; I won't be political or controversial. The Earth is flat.

MikeG62
Posts: 2734
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: How much umbrella insurance?

Post by MikeG62 » Wed Jun 17, 2020 7:26 am

Mordoch wrote:
Wed Jun 17, 2020 1:03 am

Even if the plaintiff wins the case, there is a big risk the jury might actually come back with a verdict of say 1 million or less even in a case where it is pretty straightforward to prove severe damages. This means any remotely competent lawyer is going to be extremely reluctant to risk a jury trial instead of settling for 5 million, especially since there ordinarily are inherently higher at least effective costs in going to trial, and typically lawyers in this situation are on a contingency so this is how they will look at the situation. Even in a case where the plaintiff is paying and you're talking about something like a car accident with severe long term medical consequences or the death of a high income earner, the risk of ending up with 1 million or less instead of 5 million (or conceivably nothing) will be too much for most to actually be willing to take.
I share the same view as Mordoch.

For this reason, DW and I selected a $5 million policy. Cost is around $900 per year. Includes uninsured and underinsured motorist coverage too.
Real Knowledge Comes Only From Experience

Lee_WSP
Posts: 2631
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Wed Jun 17, 2020 9:45 am

Mordoch wrote:
Wed Jun 17, 2020 1:45 am
peetsperk wrote:
Wed Jun 17, 2020 1:34 am
Is it possible that a large umbrella policy may also act as an incentive for a plaintiff attorney to sue a defendant? I ask this based on my own experience. A family member was severely injured by a negligent driver. Among the first things our attorney did was try to determine if the defendant had an umbrella policy?
While there might at a theoretical argument against something like having a 5 million dollar umbrella policy while having 1 million or less in assets, I think it is overrated as a concern under more ordinary circumstances.

Basically unless the defendant was truly "judgement proof" due to a lack of assets it seems obviously wildly far-fetched that the attorney would refuse to pursue that case if there was clear negligence and severe injuries involved. (In fact a lawyer advising clients not to pursue a case under such circumstances is the kind of thing that could conceivably get them in trouble with their state bar association.)

An obvious reason the lawyer would want to know is it makes obtaining an acceptable settlement amount before a trial significantly more likely. As noted there are reasons to risk avoiding a trial when possible, while an insurer which refuses a reasonable settlement offer given the facts of the case could find themselves on the hook beyond the set policy limits if the jury agrees to a higher damage amount which gives them a clear incentive to ordinarily avoid taking such a possible risk.
If the defendant was judgment proof and had no insurance the plaintiffs firm would be unlikely to want the case. I’d imagine any inquiries about umbrella insurance are undertaken after the attorney agrees to representation.

Starfox
Posts: 123
Joined: Thu Feb 06, 2020 7:28 pm
Location: Florida

Re: How much umbrella insurance?

Post by Starfox » Wed Jun 17, 2020 9:55 am

RonSwanson wrote:
Tue Jun 16, 2020 12:50 pm
I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year
$10M - $2700/year
$15M - $4700/year
$20M - $6700/year

I'm not sure how I can evaluate my risk in terms of activities and what I could be sued for and what the other side might be awarded.

We have kids, family cars, no boats, no pools, and an old house.
Good rates, I am guessing that is AIG?
We pay $9000/year for $25M excess + $5M uninsured/underinsured motorist.

Starfox
Posts: 123
Joined: Thu Feb 06, 2020 7:28 pm
Location: Florida

Re: How much umbrella insurance?

Post by Starfox » Wed Jun 17, 2020 10:06 am

TomatoTomahto wrote:
Wed Jun 17, 2020 7:03 am
RonSwanson wrote:
Tue Jun 16, 2020 12:50 pm
I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year. $140
$10M - $2700/year$270
$15M - $4700/year$313
$20M - $6700/year$335
I was surprised to see the cost per million of coverage go up as coverage increased (in blue in quote. This is not intuitive to me,and I would have expected the opposite. Is this usual? Is the reason adverse selection?
Yes - I was too until I read an article describing 'why'. It stated that each level of insurance is pooled together with equal levels, and the quantity of people purchasing higher levels is less, so the risk is spread out less, so the cost to insure is higher per million at the higher amounts.

For the OP, here is an old white paper on umbrella/excess insurance.:
https://www.oliverwyman.com/content/dam ... 092014.pdf

https://www.fbeins.com/wp-content/uploa ... Wealth.pdf
Last edited by Starfox on Wed Jun 17, 2020 10:13 am, edited 1 time in total.

User avatar
abuss368
Posts: 20058
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: How much umbrella insurance?

Post by abuss368 » Wed Jun 17, 2020 10:11 am

Our insurance advisor recommends an umbrella policy that equals our assets.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

User avatar
TomatoTomahto
Posts: 10582
Joined: Mon Apr 11, 2011 1:48 pm

Re: How much umbrella insurance?

Post by TomatoTomahto » Wed Jun 17, 2020 10:25 am

Starfox wrote:
Wed Jun 17, 2020 10:06 am
TomatoTomahto wrote:
Wed Jun 17, 2020 7:03 am
RonSwanson wrote:
Tue Jun 16, 2020 12:50 pm
I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year. $140
$10M - $2700/year$270
$15M - $4700/year$313
$20M - $6700/year$335
I was surprised to see the cost per million of coverage go up as coverage increased (in blue in quote. This is not intuitive to me,and I would have expected the opposite. Is this usual? Is the reason adverse selection?
Yes - I was too until I read an article describing 'why'. It stated that each level of insurance is pooled together with equal levels, and the quantity of people purchasing higher levels is less, so the risk is spread out less, so the cost to insure is higher per million at the higher amounts.

For the OP, here is an old white paper on umbrella/excess insurance.:
https://www.oliverwyman.com/content/dam ... 092014.pdf

https://www.fbeins.com/wp-content/uploa ... Wealth.pdf
The first linked white paper has the cost per million going in the direction I would have expected
Many are surprised at how affordable the coverage can be. The cost of $5 million in coverage may be just $600 annually. Going from $5 million to $10 million may cost an additional $300.
Okay, I get it; I won't be political or controversial. The Earth is flat.

absolute zero
Posts: 314
Joined: Thu Dec 29, 2016 4:59 pm

Re: How much umbrella insurance?

Post by absolute zero » Wed Jun 17, 2020 10:31 am

TomatoTomahto wrote:
Wed Jun 17, 2020 10:25 am
Starfox wrote:
Wed Jun 17, 2020 10:06 am
TomatoTomahto wrote:
Wed Jun 17, 2020 7:03 am
RonSwanson wrote:
Tue Jun 16, 2020 12:50 pm
I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year. $140
$10M - $2700/year$270
$15M - $4700/year$313
$20M - $6700/year$335
I was surprised to see the cost per million of coverage go up as coverage increased (in blue in quote. This is not intuitive to me,and I would have expected the opposite. Is this usual? Is the reason adverse selection?
Yes - I was too until I read an article describing 'why'. It stated that each level of insurance is pooled together with equal levels, and the quantity of people purchasing higher levels is less, so the risk is spread out less, so the cost to insure is higher per million at the higher amounts.

For the OP, here is an old white paper on umbrella/excess insurance.:
https://www.oliverwyman.com/content/dam ... 092014.pdf

https://www.fbeins.com/wp-content/uploa ... Wealth.pdf
The first linked white paper has the cost per million going in the direction I would have expected
Many are surprised at how affordable the coverage can be. The cost of $5 million in coverage may be just $600 annually. Going from $5 million to $10 million may cost an additional $300.
Well, the OP did say "something along the lines of" when referring to the costs. Maybe the OP had some bad memory when describing the costs. Hopefully he can come back and clarify.

Chip
Posts: 2978
Joined: Wed Feb 21, 2007 4:57 am

Re: How much umbrella insurance?

Post by Chip » Wed Jun 17, 2020 10:32 am

abuss368 wrote:
Wed Jun 17, 2020 10:11 am
Our insurance advisor recommends an umbrella policy that equals our assets.
How does your insurance advisor justify that recommendation?

User avatar
abuss368
Posts: 20058
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: How much umbrella insurance?

Post by abuss368 » Wed Jun 17, 2020 10:36 am

Chip wrote:
Wed Jun 17, 2020 10:32 am
abuss368 wrote:
Wed Jun 17, 2020 10:11 am
Our insurance advisor recommends an umbrella policy that equals our assets.
How does your insurance advisor justify that recommendation?
I have never seen a clear and definitive calculation or rule. More of a general recommendation. How has your insurance advisor provided a recommendation?
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

User avatar
TomatoTomahto
Posts: 10582
Joined: Mon Apr 11, 2011 1:48 pm

Re: How much umbrella insurance?

Post by TomatoTomahto » Wed Jun 17, 2020 10:40 am

Chip wrote:
Wed Jun 17, 2020 10:32 am
abuss368 wrote:
Wed Jun 17, 2020 10:11 am
Our insurance advisor recommends an umbrella policy that equals our assets.
How does your insurance advisor justify that recommendation?
I think that heuristic’s only claim to fame is that it’s easy to remember, like the heuristics that base retirement needs on salary. It’s a lazy way to convince people that they might need more umbrella than they have, with a false sense that there’s logic behind it. It might work for retired people with no income.
Okay, I get it; I won't be political or controversial. The Earth is flat.

Chip
Posts: 2978
Joined: Wed Feb 21, 2007 4:57 am

Re: How much umbrella insurance?

Post by Chip » Wed Jun 17, 2020 10:45 am

abuss368 wrote:
Wed Jun 17, 2020 10:36 am
I have never seen a clear and definitive calculation or rule. More of a general recommendation. How has your insurance advisor provided a recommendation?
I don't use an insurance salesperson advisor. I have always kept an amount of coverage that I believed would promote a vigorous defense by the insurance company. For many years it was 2M. Now it's 4M.

oldfort
Posts: 1001
Joined: Mon Mar 02, 2020 8:45 pm

Re: How much umbrella insurance?

Post by oldfort » Wed Jun 17, 2020 10:46 am

TomatoTomahto wrote:
Wed Jun 17, 2020 7:03 am
RonSwanson wrote:
Tue Jun 16, 2020 12:50 pm
I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year. $140
$10M - $2700/year$270
$15M - $4700/year$313
$20M - $6700/year$335
I was surprised to see the cost per million of coverage go up as coverage increased (in blue in quote. This is not intuitive to me,and I would have expected the opposite. Is this usual? Is the reason adverse selection?
This wouldn't surprise me for at least three reasons.
1) There's not much competition in the individual insurance market at the upper tiers. There's three companies I know of which offer above $10M in personal umbrella policies.
2) In the truly catastrophic cases, the plaintiffs always want the policy limits. Lifetime care in direct economic damages for someone paralyzed can easily exceed $10M. Awards for pain and suffering are limited only by a jury's imagination. It's in the interest of the defendant, for the insurance company to settle as quickly as possible. It makes no difference to the defendant whether the case settles for $1M or $20M. If the insurance company refuses a policy limits demand and rolls the dice on a trial, they can be held liable for a verdict in excess of the policy limits. This is how bad faith claims work.
3) Insurance companies don't sell many policies at the upper layers. In mathematical terms, the number of policies sold is too small be a statistically significant sample size. In the eyes of the actuaries, this makes insuring niche markets higher risk and they want to charge higher premiums for compensation for this risk.

Chip
Posts: 2978
Joined: Wed Feb 21, 2007 4:57 am

Re: How much umbrella insurance?

Post by Chip » Wed Jun 17, 2020 10:47 am

TomatoTomahto wrote:
Wed Jun 17, 2020 10:40 am
I think that heuristic’s only claim to fame is that it’s easy to remember, like the heuristics that base retirement needs on salary. It’s a lazy way to convince people that they might need more umbrella than they have, with a false sense that there’s logic behind it. It might work for retired people with no income.
This is my POV as well, though you said it better than I could have. :beer

Lee_WSP
Posts: 2631
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Wed Jun 17, 2020 10:51 am

Honestly , the vast majority of people do not need an umbrella policy.

You need to first ask yourself what liability exposures you even have. Well, the biggest is auto. The second is a dog bite or liability for some home issue. After that, it'd be you personally doing something negligent or intentional to cause damage to person or property. Or your kids.

Those are all covered under auto and home owners. Get a million dollar policy on each and if you some how have even more liability exposures you absolutely positively want to cover, then look into an umbrella policy.

Lee_WSP
Posts: 2631
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Wed Jun 17, 2020 10:52 am

abuss368 wrote:
Wed Jun 17, 2020 10:36 am
Chip wrote:
Wed Jun 17, 2020 10:32 am
abuss368 wrote:
Wed Jun 17, 2020 10:11 am
Our insurance advisor recommends an umbrella policy that equals our assets.
How does your insurance advisor justify that recommendation?
I have never seen a clear and definitive calculation or rule. More of a general recommendation. How has your insurance advisor provided a recommendation?
The rule should be assets minus current liability limits equals possible need for extra umbrella insurance. Otherwise the only other need is for some weird gaps in coverage.

User avatar
abuss368
Posts: 20058
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: How much umbrella insurance?

Post by abuss368 » Wed Jun 17, 2020 10:57 am

Chip wrote:
Wed Jun 17, 2020 10:45 am
abuss368 wrote:
Wed Jun 17, 2020 10:36 am
I have never seen a clear and definitive calculation or rule. More of a general recommendation. How has your insurance advisor provided a recommendation?
I don't use an insurance salesperson advisor. I have always kept an amount of coverage that I believed would promote a vigorous defense by the insurance company. For many years it was 2M. Now it's 4M.
:sharebeer
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

User avatar
TomatoTomahto
Posts: 10582
Joined: Mon Apr 11, 2011 1:48 pm

Re: How much umbrella insurance?

Post by TomatoTomahto » Wed Jun 17, 2020 10:58 am

Not to hijack this thread, but ...

I get the sense that some lawyers are on this thread. I have a fear that my kids might at some point injure someone unintentionally and not through gross negligence and have their considerable human capital (ie, future income) garnished.

How often does this happen?
Okay, I get it; I won't be political or controversial. The Earth is flat.

oldfort
Posts: 1001
Joined: Mon Mar 02, 2020 8:45 pm

Re: How much umbrella insurance?

Post by oldfort » Wed Jun 17, 2020 11:00 am

TomatoTomahto wrote:
Wed Jun 17, 2020 10:58 am
Not to hijack this thread, but ...

I get the sense that some lawyers are on this thread. I have a fear that my kids might at some point injure someone unintentionally and not through gross negligence and have their considerable human capital (ie, future income) garnished.

How often does this happen?
I'm guessing almost never. At the point your wages are getting garnished, almost any rational person would file for bankruptcy. This is assuming there aren't aggravating factors, ex. DUI, which could make the debt non-dischargeable in bankruptcy.

User avatar
TomatoTomahto
Posts: 10582
Joined: Mon Apr 11, 2011 1:48 pm

Re: How much umbrella insurance?

Post by TomatoTomahto » Wed Jun 17, 2020 11:20 am

oldfort wrote:
Wed Jun 17, 2020 11:00 am
TomatoTomahto wrote:
Wed Jun 17, 2020 10:58 am
Not to hijack this thread, but ...

I get the sense that some lawyers are on this thread. I have a fear that my kids might at some point injure someone unintentionally and not through gross negligence and have their considerable human capital (ie, future income) garnished.

How often does this happen?
I'm guessing almost never. At the point your wages are getting garnished, almost any rational person would file for bankruptcy. This is assuming there aren't aggravating factors, ex. DUI, which could make the debt non-dischargeable in bankruptcy.
That is partially reassuring, but as the income in question for one of my kids would require ongoing FINRA certification (is that the right term?), it might not help to file for bankruptcy.

ETA: I have recommended that he get umbrella insurance far in excess of his current assets in case his car drives over a sheet of ice and hits the proverbial van driven by a nun carrying orphans to a charity event.
Okay, I get it; I won't be political or controversial. The Earth is flat.

Topic Author
RonSwanson
Posts: 75
Joined: Sat Feb 22, 2020 7:15 pm

Re: How much umbrella insurance?

Post by RonSwanson » Wed Jun 17, 2020 11:39 am

absolute zero wrote:
Wed Jun 17, 2020 10:31 am
TomatoTomahto wrote:
Wed Jun 17, 2020 10:25 am
Starfox wrote:
Wed Jun 17, 2020 10:06 am
TomatoTomahto wrote:
Wed Jun 17, 2020 7:03 am
RonSwanson wrote:
Tue Jun 16, 2020 12:50 pm
I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year. $140
$10M - $2700/year$270
$15M - $4700/year$313
$20M - $6700/year$335
I was surprised to see the cost per million of coverage go up as coverage increased (in blue in quote. This is not intuitive to me,and I would have expected the opposite. Is this usual? Is the reason adverse selection?
Yes - I was too until I read an article describing 'why'. It stated that each level of insurance is pooled together with equal levels, and the quantity of people purchasing higher levels is less, so the risk is spread out less, so the cost to insure is higher per million at the higher amounts.

For the OP, here is an old white paper on umbrella/excess insurance.:
https://www.oliverwyman.com/content/dam ... 092014.pdf

https://www.fbeins.com/wp-content/uploa ... Wealth.pdf
The first linked white paper has the cost per million going in the direction I would have expected
Many are surprised at how affordable the coverage can be. The cost of $5 million in coverage may be just $600 annually. Going from $5 million to $10 million may cost an additional $300.
Well, the OP did say "something along the lines of" when referring to the costs. Maybe the OP had some bad memory when describing the costs. Hopefully he can come back and clarify.
I just rounded to the nearest hundred.

Topic Author
RonSwanson
Posts: 75
Joined: Sat Feb 22, 2020 7:15 pm

Re: How much umbrella insurance?

Post by RonSwanson » Wed Jun 17, 2020 11:40 am

Starfox wrote:
Wed Jun 17, 2020 9:55 am
RonSwanson wrote:
Tue Jun 16, 2020 12:50 pm
I have umbrella insurance currently, but our NW has increased significantly and I'm trying to determine if we need more. The cost goes up quick as the coverage increases. Something along the lines of:

$5M - $700/year
$10M - $2700/year
$15M - $4700/year
$20M - $6700/year

I'm not sure how I can evaluate my risk in terms of activities and what I could be sued for and what the other side might be awarded.

We have kids, family cars, no boats, no pools, and an old house.
Good rates, I am guessing that is AIG?
We pay $9000/year for $25M excess + $5M uninsured/underinsured motorist.
These are from State Farm

User avatar
Nicolas
Posts: 1973
Joined: Wed Aug 22, 2012 7:41 am
Location: 56th and Wabasha, Ashtabula, OH

Re: How much umbrella insurance?

Post by Nicolas » Wed Jun 17, 2020 11:54 am

NavyIC3 wrote:
Wed Jun 17, 2020 5:47 am
My umbrella policy increases Uninsured Motorists to $1M.
I added uninsured/underinsured motorist coverage to my $2MM umbrella. The cost was an extra $200/year. I already had $500K of underlying coverage, so this brings me up to $2.5MM of uninsured/underinsured. I had to add it to my umbrella as it wasn’t standard.

I read in this older thread —> viewtopic.php?f=2&t=306123&p=5075516&hilit=Sue#p5075516 that insurance companies are loathe to pay out on this type of claim and that you may have to sue your own insurance company for the payout. I don’t know how much of that is true but I bought it anyway as I’d rather have it than not, notwithstanding.

Lee_WSP
Posts: 2631
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Wed Jun 17, 2020 12:17 pm

NavyIC3 wrote:
Wed Jun 17, 2020 5:47 am
My umbrella policy increases Uninsured Motorists to $1M.
That might be worth getting umbrella insurance for.

Lee_WSP
Posts: 2631
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Wed Jun 17, 2020 12:20 pm

TomatoTomahto wrote:
Wed Jun 17, 2020 10:58 am
Not to hijack this thread, but ...

I get the sense that some lawyers are on this thread. I have a fear that my kids might at some point injure someone unintentionally and not through gross negligence and have their considerable human capital (ie, future income) garnished.

How often does this happen?
To be garnished, you'd need to first have a judgment. First thing's first.

They'd have to 1) clearly be at fault, 2) cause significant damages beyond whatever liability policy they have, 3) the damages must be provable, and 4) it doesn't settle for the policy limits.

Or 5) the incident isn't covered by an insurance policy and then they go to trial and he loses because well, he's at fault. He'd also have to not have settled at some point prior to losing at trial.

The vast majority of liability cases settle. And by vast majority, I mean like 99%+ of them. No one wants to go to trial if they don't have to.

User avatar
NavyIC3
Posts: 165
Joined: Wed Jan 10, 2018 2:18 pm

Re: How much umbrella insurance?

Post by NavyIC3 » Fri Jun 26, 2020 3:49 pm

Nicolas wrote:
Wed Jun 17, 2020 11:54 am
NavyIC3 wrote:
Wed Jun 17, 2020 5:47 am
My umbrella policy increases Uninsured Motorists to $1M.
I added uninsured/underinsured motorist coverage to my $2MM umbrella. The cost was an extra $200/year. I already had $500K of underlying coverage, so this brings me up to $2.5MM of uninsured/underinsured. I had to add it to my umbrella as it wasn’t standard.

I read in this older thread —> viewtopic.php?f=2&t=306123&p=5075516&hilit=Sue#p5075516 that insurance companies are loathe to pay out on this type of claim and that you may have to sue your own insurance company for the payout. I don’t know how much of that is true but I bought it anyway as I’d rather have it than not, notwithstanding.
I have AARP Hartford homeowners and auto policies. There was no additional charge for the increase in uninsured/underinsured coverage to $1M on the umbrella. I have a $5M umbrella poilicy.

User avatar
willthrill81
Posts: 19116
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How much umbrella insurance?

Post by willthrill81 » Fri Jun 26, 2020 4:00 pm

Lee_WSP wrote:
Wed Jun 17, 2020 12:20 pm
TomatoTomahto wrote:
Wed Jun 17, 2020 10:58 am
Not to hijack this thread, but ...

I get the sense that some lawyers are on this thread. I have a fear that my kids might at some point injure someone unintentionally and not through gross negligence and have their considerable human capital (ie, future income) garnished.

How often does this happen?
To be garnished, you'd need to first have a judgment. First thing's first.

They'd have to 1) clearly be at fault, 2) cause significant damages beyond whatever liability policy they have, 3) the damages must be provable, and 4) it doesn't settle for the policy limits.

Or 5) the incident isn't covered by an insurance policy and then they go to trial and he loses because well, he's at fault. He'd also have to not have settled at some point prior to losing at trial.

The vast majority of liability cases settle. And by vast majority, I mean like 99%+ of them. No one wants to go to trial if they don't have to.
Spot on. Based on what I've researched and heard from attorneys, including on this very forum, enforceable judgments that exceed one's assets are so rare as to be almost non-existent. It's just not worth the legal costs and hassle involved, and everyone knows this.

About the only remotely plausible exception is a very high income earner who does not already have significant assets, such as a late 30s neurosurgeon. And no, I'm not talking about malpractice. Every attorney in the country knows that such an individual has a very high likelihood of earning a very high income for many years. So someone who is believed to be a ripe target should carry a lot of liability insurance, probably umbrella. But it's far easier and faster to go after assets than future income' both litigants and their attorneys don't want to wait for a decade or longer to get their money. Outside of alimony, back taxes owed, etc., wage garnishments from civil cases seem to be very rare.

Given that 100% of our retirement accounts are judgment proof in our state, we only have about $200k exposed to lawsuits, and we have enough home and auto liability coverage to more than protect that. Consequently, we see no real need for umbrella coverage for ourselves.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

NewMoneyMustBeSmart
Posts: 260
Joined: Sat Jun 01, 2019 10:28 pm
Location: Midwest

Re: How much umbrella insurance?

Post by NewMoneyMustBeSmart » Fri Jun 26, 2020 4:22 pm

todaysBob wrote:
Tue Jun 16, 2020 7:14 pm
Newbie question - Why does the net worth matter here?
It's my understanding that frequently one of the first things that a plaintiff's attorney does on considering a case is to do an asset search for the defendant.

If the defendant's assets are not visible or perceived to be low; the amount the plaintiff targets, or the likelihood of the attorney taking the case, are decreased.

So the more money you have, not only is it the more you have to lose - but the more likely you'll be targetted.

So, more insurance for that outcome (likelihood * impact) is useful.
-- | Few are those who see with their own eyes and feel with their own hearts - Einstein

Lee_WSP
Posts: 2631
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Fri Jun 26, 2020 4:26 pm

willthrill81 wrote:
Fri Jun 26, 2020 4:00 pm

About the only remotely plausible exception is a very high income earner who does not already have significant assets, such as a late 30s neurosurgeon. And no, I'm not talking about malpractice. Every attorney in the country knows that such an individual has a very high likelihood of earning a very high income for many years. So someone who is believed to be a ripe target should carry a lot of liability insurance, probably umbrella. But it's far easier and faster to go after assets than future income' both litigants and their attorneys don't want to wait for a decade or longer to get their money. Outside of alimony, back taxes owed, etc., wage garnishments from civil cases seem to be very rare.
Correct. If you don't look like a target, you aren't a target. Even if you actually did have several million in taxable accounts, unless you lived that lifestyle, the plaintiff does not know how much you're worth. It's generally not discover-able either since it has nothing to do with the incident.

The only reason to get umbrella insurance is if your home & auto liability (under/uninsured are limited by this) limits are lower than you'd like them to be. How much they should be is the real question.
NewMoneyMustBeSmart wrote:
Fri Jun 26, 2020 4:22 pm
If the defendant's assets are not visible or perceived to be low; the amount the plaintiff targets, or the likelihood of the attorney taking the case, are decreased.

So the more money you have, not only is it the more you have to lose - but the more likely you'll be targetted.
No, the more money you flash, the larger a target you are. Easily searchable indicators of wealth include: car, home, clothing, job. Less easily found, but also useful: social circle, family assets, etc etc.

NewMoneyMustBeSmart
Posts: 260
Joined: Sat Jun 01, 2019 10:28 pm
Location: Midwest

Re: How much umbrella insurance?

Post by NewMoneyMustBeSmart » Fri Jun 26, 2020 4:33 pm

Lee_WSP wrote:
Fri Jun 26, 2020 4:26 pm
No, the more money you flash, the larger a target you are. Easily searchable indicators of wealth include: car, home, clothing, job. Less easily found, but also useful: social circle, family assets, etc etc.
I think we agree more than we disagree. However, it's not very hard for an attorney or private investigator to get an asset report from brokerages and banks, from information in your credit report, though. So I gently disagree, it's not just assets titled in your name on the public record.

_How To Be Invisible_ does recommend titling assets in companies/llcs for this low-profile purpose, with which I Agree.
-- | Few are those who see with their own eyes and feel with their own hearts - Einstein

Lee_WSP
Posts: 2631
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Fri Jun 26, 2020 4:36 pm

NewMoneyMustBeSmart wrote:
Fri Jun 26, 2020 4:33 pm
Lee_WSP wrote:
Fri Jun 26, 2020 4:26 pm
No, the more money you flash, the larger a target you are. Easily searchable indicators of wealth include: car, home, clothing, job. Less easily found, but also useful: social circle, family assets, etc etc.
I think we agree more than we disagree. However, it's not very hard for an attorney or private investigator to get an asset report from brokerages and banks, from information in your credit report, though. So I gently disagree, it's not just assets titled in your name on the public record.

_How To Be Invisible_ does recommend titling assets in companies/llcs for this low-profile purpose, with which I Agree.
Hiring the private investigator falls under scenario two (less easily found). Home address, social circle, car, etc etc can all be sussed out during the face to face deposition, browsing Facebook, (their car is in the accident report), etc etc.

If you look super normal and the policy limit covers the plaintiffs actual damages plus some pain & suffering, no further investigation will occur. The whole thing will just settle.

Like I said, it'd have to be something heinous or you're a super ripe target for them to drag out a case.

User avatar
willthrill81
Posts: 19116
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How much umbrella insurance?

Post by willthrill81 » Fri Jun 26, 2020 4:40 pm

NewMoneyMustBeSmart wrote:
Fri Jun 26, 2020 4:33 pm
Lee_WSP wrote:
Fri Jun 26, 2020 4:26 pm
No, the more money you flash, the larger a target you are. Easily searchable indicators of wealth include: car, home, clothing, job. Less easily found, but also useful: social circle, family assets, etc etc.
I think we agree more than we disagree. However, it's not very hard for an attorney or private investigator to get an asset report from brokerages and banks, from information in your credit report, though.
I don't think that a PI can legally discover the balance of taxable accounts, tax-advantaged accounts, etc. But perhaps I'm wrong. Of course, an attorney can formally request that a defendant disclose such information, and courts may mandate that you provide it. That's why it's a great idea to shield as much of those assets as you can. In our state (WA), IRAs have the same legal protection as ERISA accounts, so the only significant asset we're likely to ever have that's at all unprotected is the difference between our home's market value and the state's threshold for judgments on primary residences, which is $125k, IIRC, and that's covered by our homeowner's insurance and separately by our auto insurance.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Post Reply