When does purchasing Umbrella Insurance Coverage makes sense?

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simpleliving1
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When does purchasing Umbrella Insurance Coverage makes sense?

Post by simpleliving1 »

I am married with a 1-year-old and is in a 22% Federal tax bracket. Our NW is about 3X our annual take-home salaries. Both of us have 1M/20yr term life insurance policies that were started last year after I found this forum. My question is when does it make sense to purchase Umbrella coverage? I understand it will definitely give us peace of mind, but in our case, since we are in the accumulating stage and our NW is not too high. does it make sense to spend another ~1k/yr to purchase umbrella coverage?
Rudedog
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Rudedog »

When you have a significant amount of assets you want to protect. My umbrella insurance is about $ 400 per year.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by SmileyFace »

Lots of forum posts on this already - also see this: https://www.bogleheads.org/wiki/Umbrella_insurance

If you have a family and have assets it's good to have in my opinion. Actually - even if you don't have much in the way of current assets you don't want some ridiculous lawsuit attaching your future income. It's relatively cheap for what it provides.
$1K sounds expensive - I have young drivers in the house PLUS a inground swimming pool with diving board which drives my rate up to over $400 but it is typically between 300 and 400 from what folks report (For $1M in coverage).
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simpleliving1
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by simpleliving1 »

I guess i am having difficulty understanding when one can consider their assets are significant, I do not own a home and as I mentioned NW is only around ~3X salary. Why does how much person's current assets makes any difference in deciding if they need umbrella insurance or not if lawsuits can be attached to future income? Does that mean everyone should buy umbrella insurance?
Mordoch
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Mordoch »

simpleliving1 wrote: Wed Jun 17, 2020 1:42 pm Why does how much person's current assets makes any difference in deciding if they need umbrella insurance or not if lawsuits can be attached to future income? Does that mean everyone should buy umbrella insurance?
You can argue this danger is heavily overrated particularly if truly no-one in the family is going to do something like drink and drive. Barring an aggravating circumstance like this, you can just go ahead and declare bankruptcy and ordinarily discharge the debt, so this heavily limits the number of circumstances where wages are likely to end up garnished as the result of a lawsuit and the financial incentive to have umbrella insurance if you don't have much in the way of potentially exposed assets.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by tashnewbie »

Also think about how much of your NW is in non-tax-advantaged accounts. 401ks and other work retirement plans and IRAs in most states (I think there are 7 or 8 that provide no or limited protection of IRAs) are pretty ironclad from creditors.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by scooter »

I purchased a million dollar policy 30 years ago when i installed swimming pool and it also covered additional car insurance.

I know a million dollar policy doesn't seem like much today but I thought it was more than sufficient at that time
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Sandtrap »

simpleliving1 wrote: Wed Jun 17, 2020 12:47 pm I am married with a 1-year-old and is in a 22% Federal tax bracket. Our NW is about 3X our annual take-home salaries. Both of us have 1M/20yr term life insurance policies that were started last year after I found this forum. My question is when does it make sense to purchase Umbrella coverage? I understand it will definitely give us peace of mind, but in our case, since we are in the accumulating stage and our NW is not too high. does it make sense to spend another ~1k/yr to purchase umbrella coverage?
If you live in a 500 sf low income apartment and you live paycheck to paycheck and have no savings, then you don't need umbrella insurance. You have nothing to collect in a lawsuit.

You are married with a 1 year old and have savings and steady salaries.
So>?

Suggest pricing out some umbrella insurance rates from your insurance providers. It likely will not cost much added on to your regular premiums. Get it.

This is like Life Insurance, you get it but you don't ever want to collect on it because that means that you're dead, if looked at it that way. So you get umbrella insurance and hope that you never get in a car accident with dire results happening to the other driver or driver's family, and so forth. You just don't want to find out these things and hope it never happens. Compared to that, the premiums don't cost much compared to the sleep factor.

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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by absolute zero »

simpleliving1 wrote: Wed Jun 17, 2020 1:42 pm I guess i am having difficulty understanding when one can consider their assets are significant, I do not own a home and as I mentioned NW is only around ~3X salary. Why does how much person's current assets makes any difference in deciding if they need umbrella insurance or not if lawsuits can be attached to future income? Does that mean everyone should buy umbrella insurance?
Not every state allows for wage garnishment.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by cashboy »

Sandtrap wrote: Wed Jun 17, 2020 2:24 pm
simpleliving1 wrote: Wed Jun 17, 2020 12:47 pm I am married with a 1-year-old and is in a 22% Federal tax bracket. Our NW is about 3X our annual take-home salaries. Both of us have 1M/20yr term life insurance policies that were started last year after I found this forum. My question is when does it make sense to purchase Umbrella coverage? I understand it will definitely give us peace of mind, but in our case, since we are in the accumulating stage and our NW is not too high. does it make sense to spend another ~1k/yr to purchase umbrella coverage?
If you live in a 500 sf low income apartment and you live paycheck to paycheck and have no savings, then you don't need umbrella insurance. You have nothing to collect in a lawsuit.

You are married with a 1 year old and have savings and steady salaries.
So>?

Suggest pricing out some umbrella insurance rates from your insurance providers. It likely will not cost much added on to your regular premiums. Get it.

This is like Life Insurance, you get it but you don't ever want to collect on it because that means that you're dead, if looked at it that way. So you get umbrella insurance and hope that you never get in a car accident with dire results happening to the other driver or driver's family, and so forth. You just don't want to find out these things and hope it never happens. Compared to that, the premiums don't cost much compared to the sleep factor.

j :happy
this above.

you can usually get it for around $300 per million.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by mnsportsgeek »

I noticed my net worth was approaching the limits on my auto and renters policy and ended up buying an umbrella policy. I probably should have done it sooner. It's only $13 a month or so.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Flobes »

simpleliving1 wrote: Wed Jun 17, 2020 12:47 pm My question is when does it make sense to purchase Umbrella coverage? I understand it will definitely give us peace of mind, but in our case, since we are in the accumulating stage and our NW is not too high. does it make sense to spend another ~1k/yr to purchase umbrella coverage?
Yes, umbrella insurance protects your assets.

At least as importantly, remember that it protects a victim to whom you may have caused harm. Imagine you seriously injured someone in an accident. It's good to know you have resources available to support their healing.

And umbrella insurance will also provide the legal help you'll need.

Umbrella insurance pricing is very variable. My GEICO $1 million umbrella policy is $120 for past three years (and before that, it was $104 for four years). Are you in some risk category that makes your premium so outrageously high?
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by TomatoTomahto »

Flobes wrote: Wed Jun 17, 2020 3:16 pm At least as importantly, remember that it protects a victim to whom you may have caused harm. Imagine you seriously injured someone in an accident. It's good to know you have resources available to support their healing.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by CalculatedRisk »

mnsportsgeek wrote: Wed Jun 17, 2020 3:03 pm I noticed my net worth was approaching the limits on my auto and renters policy and ended up buying an umbrella policy. I probably should have done it sooner. It's only $13 a month or so.
What does net worth have to do with coverage amount?

If your net worth is $300k and your coverage is $500k, what happens if you lose a $1M lawsuit? Answer: insurance pays $500k, you pay the $300k you have, and you are on the hook for the rest of the 200k.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Mordoch »

CalculatedRisk wrote: Wed Jun 17, 2020 4:42 pm What does net worth have to do with coverage amount?

If your net worth is $300k and your coverage is $500k, what happens if you lose a $1M lawsuit? Answer: insurance pays $500k, you pay the $300k you have, and you are on the hook for the rest of the 200k.
Again barring exceptional circumstances such as a DUI being involved or the like it does not actually work that way with the second part. (Admittedly whoever is making the decision needs to be honest about their habits and those of their family members in this kind of area, although of course the best answer is simply never do that kind of thing.)

The person would simply declare bankruptcy so they would no longer be responsible for the 200k, plus at least a bit of their assets would be protected under any state's bankruptcy laws. Furthermore in any state their 401k funds would be protected plus generally the IRA funds with bankruptcy declared.

The fact this is the case means it actually is going to be fairly rare for whosoever is suing to pursue a lawsuit in court rather than seeking a settlement for 500k in that specific situation. Basically anyone suing (or at least their lawyer who will advise them) should recognize in that scenario they are going to end up with actually less than 300k extra, with it likely being a pain and expensive to actually seize your assets on top of all the court related expenses involved with actually going to trial. It simply ends up not being worth the risk for only in practice bit of extra money and allot of aggravation, especially because even in a seemingly open in shut case the jury could always surprise everyone any either conclude the person being sued is not liable or end up granting an unexpectedly low verdict, especially if they might have seen indications that the defendant is not that wealthy.

This means at least strictly financially speaking there are arguments for adjusting for net worth, although certainly by the time you are talking about below 500k in coverage the decision making might change somewhat on top of arguable ethical issues with not having at least a certain amount in coverage in case something happens.
Last edited by Mordoch on Wed Jun 17, 2020 5:25 pm, edited 1 time in total.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by mnsportsgeek »

CalculatedRisk wrote: Wed Jun 17, 2020 4:42 pm
mnsportsgeek wrote: Wed Jun 17, 2020 3:03 pm I noticed my net worth was approaching the limits on my auto and renters policy and ended up buying an umbrella policy. I probably should have done it sooner. It's only $13 a month or so.
What does net worth have to do with coverage amount?

If your net worth is $300k and your coverage is $500k, what happens if you lose a $1M lawsuit? Answer: insurance pays $500k, you pay the $300k you have, and you are on the hook for the rest of the 200k.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by TexasPE »

Flobes wrote: Wed Jun 17, 2020 3:16 pm
remember that it protects a victim to whom you may have caused harm. Imagine you seriously injured someone in an accident. It's good to know you have resources available to support their healing.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by reln »

Get a 1M policy.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by lionroar22 »

Never thought anything about it until going thru my parents paperwork for them a few years ago and seeing they had it. After researching, including here, I realized it has true value if you have substantial assets to lose. We live in a litigious world, and you really never know when something VERY tragic can occur. Add to that a good amount of savings and a pool, and it made it a no brainer for us. FYI, we only pay less than $200 per year for 1M in umbrella coverage. IMHO, a small cost to pay for piece of mind as I live by the credo to “expect the unexpected”.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by oldfort »

$1k/year sounds high. Have you priced it out at other insurance companies?
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by The 19th hole »

Price depends on location. I live in NYC and purchased a $1m policy last year (first time) with an annual premium of $550. Renewal just showed up for a premium of $630. I have 2 cars and the premium for each (broken down in the overall premium) is the same even though one is basically a station car.

It's liability, so what car you drive doesn't matter.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by LeeMKE »

I have used an umbrella policy and made the decision based on my risk exposure:

teenagers in the household, get umbrella coverage.
Pool, get umbrella coverage.
High crime area, get umbrella coverage.
Public exposure of your assets, i.e. windfall wealth, you become a CEO with publicity attendant, etc.

Otherwise, you have better places to spend your money. Set a reminder when your child reaches age 15 +/- and put an umbrella in place then. I avoid over-insuring, even when the coverage is "cheap" but I watch the risk exposure and insure what I can't self-insure.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by MikeG62 »

I’d say it makes sense a lot more often than it doesn’t.

FWIW, I carry a $5 million umbrella.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Hector »

Whenever you think filing bankruptcy is not ideal, it’s time to buy umbrella policy. Life happens. I would buy umbrella policy today.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by tashnewbie »

I don't really have anything that would make me more likely than average to get sued (no pool, other drivers in the household, etc). The only thing I could see myself getting sued for, and which has happened in the past, is an at-fault car accident. I'm an attorney and used to defend these types of personal injury lawsuits. The vast majority of cases settle, and those always settle within policy limits.

I just bought $1M of umbrella coverage for $157 for the year. Not bad. At that price, it's not worth my time thinking about whether it's worth having it.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

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This thread is now in the Personal Finance (Not Investing) forum (insurance).
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

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simpleliving1 wrote: Wed Jun 17, 2020 1:42 pm I guess i am having difficulty understanding when one can consider their assets are significant, I do not own a home and as I mentioned NW is only around ~3X salary. Why does how much person's current assets makes any difference in deciding if they need umbrella insurance or not if lawsuits can be attached to future income? Does that mean everyone should buy umbrella insurance?
You need umbrella coverage when losing what you have would be more than just a financial setback. How much you need is a matter of cost and what you think is your reasonable maximum exposure--it's a balancing. $1M of coverage is relatively cheap.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by afan »

The insurance company, which deals with lawsuits all the time, will pick and pay your lawyer. The insurance companies will often get better rates from expert attorneys than you could get because they represent steady work for the law firms. Without it, you would be on your own to find a good attorney for your case and to pay them.

$1,000 is crazy high. If that is the total for auto, home and umbrella, then it is quite reasonable.

You don't own a home. Do you own a car? The umbrella policies are designed to piggyback on top of auto and homeowners insurance. If you carry neither and would have to buy auto and renters insurance, then those plus umbrella could be $1,000.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by oldfort »

afan wrote: Thu Jun 18, 2020 12:18 pm The insurance company, which deals with lawsuits all the time, will pick and pay your lawyer. The insurance companies will often get better rates from expert attorneys than you could get because they represent steady work for the law firms. Without it, you would be on your own to find a good attorney for your case and to pay them.
This is misleading at best. Almost any claim which would be paid under an umbrella policy is covered by your auto or homeowners insurance. Without umbrella insurance, your auto or homeowners insurance pays for your legal defense.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by JLJL »

I've been thinking about this from time to time as well and yesterday pulled the trigger. A call to Geico (auto through them as was home which is serviced by travelers), and within about 15 minutes I had signed off on a $1M policy for $350. Took effect midnight last night.

Incidentally the coverage AMOUNT wasn't even discussed, it was just assumed to be $1M.

My $1M 20yr term life insurance costs about $1200/yr. That made me feel a bit unsettled seeing how much more likely it is that I DIE than get sued beyond current coverages.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Jags4186 »

I’d carry umbrella insurance once your seizable assets exceed your liability coverage between home and auto. It’s likely cheaper to up your auto or homeowners liability coverage to $500k in the near term.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Pete3 »

Jags4186 wrote: Thu Jun 18, 2020 12:54 pm I’d carry umbrella insurance once your seizable assets exceed your liability coverage between home and auto. It’s likely cheaper to up your auto or homeowners liability coverage to $500k in the near term.
The two things have almost nothing to do with each other (assets versus coverage)

It is true that if your NW is negligible then you are basically judgement proof (other than future wages) and therefore you probably don't need umbrella insurance

But once you decide you need it, the coverage level should have NOTHING TO DO with your NW. When someone sues you they do not sue you based on your NW, they sue you based on what you did to them. Having 1M in umbrella insurance does not protect your 1M NW, it protects you against a 1M lawsuit. A 2M lawsuit still wipes out your 1M NW.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Mordoch »

Pete3 wrote: Thu Jun 18, 2020 1:06 pm But once you decide you need it, the coverage level should have NOTHING TO DO with your NW. When someone sues you they do not sue you based on your NW, they sue you based on what you did to them. Having 1M in umbrella insurance does not protect your 1M NW, it protects you against a 1M lawsuit. A 2M lawsuit still wipes out your 1M NW.
As I noted in another recent thread, whether they agree to a settlement can be highly dependent on what your coverage limit is versus your asset level when they are evaluating the risk of going to trial. Generally the level of damages can be debatable, and even in a seemingly obvious case there is a risk that a jury can do something unexpected. To provide my recent response to another example where someone asked what prevented someone from a 5 million dollar net work and 5 million in umbrella insurance from simply ending up with a 10 million dollar judgement against them at trial...

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.

It should be kept in mind that in a large portion of cases the jury is going to award under 1 million, and some juries simply feel uncomfortable with larger verdicts even if the trial clearly showed why it would be justified because it feels like so much money. (Especially when you are talking about an individual being sued vs a corporation where a jury might have fewer qualms about this.) Now especially if at the 1 million dollar level you might justify an extra million in coverage just to feel safe, but there are reasons that roughly your net worth in coverage is commonly suggested once you are talking about the umbrella insurance level of coverage. (There also is at least a theoretical concern that having too much in umbrella insurance vs your net work could theoretically provide a perverse incentive for the person or lawyer suing to take the lawsuit to trial in the hope of getting lucky with a jury verdict.)
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Pete3 »

Mordoch wrote: Thu Jun 18, 2020 1:32 pm
Pete3 wrote: Thu Jun 18, 2020 1:06 pm But once you decide you need it, the coverage level should have NOTHING TO DO with your NW. When someone sues you they do not sue you based on your NW, they sue you based on what you did to them. Having 1M in umbrella insurance does not protect your 1M NW, it protects you against a 1M lawsuit. A 2M lawsuit still wipes out your 1M NW.
As I noted in another recent thread, whether they agree to a settlement can be highly dependent on what your coverage limit is versus your asset level when they are evaluating the risk of going to trial. Generally the level of damages can be debatable, and even in a seemingly obvious case there is a risk that a jury can do something unexpected. To provide my recent response to another example where someone asked what prevented someone from a 5 million dollar net work and 5 million in umbrella insurance from simply ending up with a 10 million dollar judgement against them at trial...
There is nothing preventing that, indeed your umbrella insurance level should be at a level based on your risk factors while keeping in mind the odds of a SUCCESSFUL lawsuit that would exceed that limit.

I agree that if you have a 1M umbrella policy the plaintiff may be very willing to settle on that amount rather than risk going to trial - and that is true whether you have NW or $500k or $5M. So sure, your coverage level may affect the settlement amount but your NW should not.
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simpleliving1
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by simpleliving1 »

Thank you BHs for the valuable inputs. We currently own two cars and never touched any drug/alcohol in our whole life. Our driving records are completely clean and never got any moving or non-moving violations. The point I was trying to make was if someone can sue an individual for more than their NW and insurance policy ($1M in my case) combined and also can come after future incomes (I guess by declaring bankruptcy one can always get out from the wage garnishment?). How one can decide accurately how much policy is good enough?

@ absoltuezero mentioned "Not every state allows for wage garnishment". How can I find what is the law against wage garnishment or retriment funds in Delaware and PA?

P.S. I reached out to State Farm they quoted $200 for 1M option. But after reading comments I am now wondering if I should increase it to 2M.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by oldfort »

JLJL wrote: Thu Jun 18, 2020 12:40 pm I've been thinking about this from time to time as well and yesterday pulled the trigger. A call to Geico (auto through them as was home which is serviced by travelers), and within about 15 minutes I had signed off on a $1M policy for $350. Took effect midnight last night.

Incidentally the coverage AMOUNT wasn't even discussed, it was just assumed to be $1M.

My $1M 20yr term life insurance costs about $1200/yr. That made me feel a bit unsettled seeing how much more likely it is that I DIE than get sued beyond current coverages.
This puts it in perspective. The premiums aren't directly comparable because term life is fixed for 20 years, while umbrella premiums go up every year. If you're more likely to die than have your umbrella policy pay out, it does show you how low the risks are which umbrella insurance covers.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Mordoch »

Pete3 wrote: Thu Jun 18, 2020 1:50 pm I agree that if you have a 1M umbrella policy the plaintiff may be very willing to settle on that amount rather than risk going to trial - and that is true whether you have NW or $500k or $5M. So sure, your coverage level may affect the settlement amount but your NW should not.
This logic ends up flawed in practice though. If you have 500k in assets and a 1M umbrella policy it is extremely questionable whether a lawyer working on contingency would be willing to take the case to trial at all rather than try getting a million dollar settlement first. Even for an individual directly paying for a lawyer is is too much risk and extra time for only so much more money (especially since they are paying for the lawyer and there are ways to protect at least a bit of your assets if you ended up declaring bankruptcy as a result of the verdict.)

By contrast, if you have 1 million in umbrella insurance but 5 million dollars in assets, there might be significantly more willingness to "roll the dice" and hope for a big jury verdict in a case with a sufficient justification for a high damage amount. It all is about the risk reward ratio in practice, even in a case where the plaintiff could argue they really should get more money than that.
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Mordoch »

simpleliving1 wrote: Thu Jun 18, 2020 1:55 pm @ absoltuezero mentioned "Not every state allows for wage garnishment". How can I find what is the law against wage garnishment or retriment funds in Delaware and PA?
As noted you can get out of wage garnishment situations via bankruptcy in any state if necessary. Your 401k will also end up protected. While there is sometimes confusion of this point, unless its an inherited account when declaring bankruptcy IRAs are protected up at least $1,362,800 right now when you declare bankruptcy at well.
https://www.thebankruptcysite.org/resou ... ruptcy.htm

This means the amount of assets someone could even theoretically get out of you in a verdict might not be as much as you think. In practice there comes a point where it simply is profoundly unlikely someone is risking going to trial to get percentage wise a limited amount of further assets when the risks of getting nothing or much less from a jury are so significant. (One other detail is lawyers generally find actually trying to seize someone's assets vs just getting a check from an insurer to be a generally extremely unappealing prospect so they only are willing to resort to pursuing this when there really is a strong enough incentive to deal with the complications of such an approach.)
Pete3
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Pete3 »

Mordoch wrote: Thu Jun 18, 2020 2:20 pm
Pete3 wrote: Thu Jun 18, 2020 1:50 pm I agree that if you have a 1M umbrella policy the plaintiff may be very willing to settle on that amount rather than risk going to trial - and that is true whether you have NW or $500k or $5M. So sure, your coverage level may affect the settlement amount but your NW should not.
This logic ends up flawed in practice though. If you have 500k in assets and a 1M umbrella policy it is extremely questionable whether a lawyer working on contingency would be willing to take the case to trial at all rather than try getting a million dollar settlement first. Even for an individual directly paying for a lawyer is is too much risk and extra time for only so much more money (especially since they are paying for the lawyer and there are ways to protect at least a bit of your assets if you ended up declaring bankruptcy as a result of the verdict.)

By contrast, if you have 1 million in umbrella insurance but 5 million dollars in assets, there might be significantly more willingness to "roll the dice" and hope for a big jury verdict in a case with a sufficient justification for a high damage amount. It all is about the risk reward ratio in practice, even in a case where the plaintiff could argue they really should get more money than that.
Sure, if the plaintiff really deserves $5M due to the nature of the claim then the scenario you laid out is possible, but the idea that someone that would normally settle for $1M would decide to roll the dice and risk a trial to go for $5M just because you have $5M NW seems unlikely. It seems even more unlikely that their lawyer who is working on contingency would want to go this route either.

This gets back to my original point, your policy should be based on your risk profile - if being sued for $5M seems realistic for your situation then you should have higher policy limits no matter what your NW worth.
Grt2bOutdoors
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Grt2bOutdoors »

simpleliving1 wrote: Thu Jun 18, 2020 1:55 pm Thank you BHs for the valuable inputs. We currently own two cars and never touched any drug/alcohol in our whole life. Our driving records are completely clean and never got any moving or non-moving violations. The point I was trying to make was if someone can sue an individual for more than their NW and insurance policy ($1M in my case) combined and also can come after future incomes (I guess by declaring bankruptcy one can always get out from the wage garnishment?). How one can decide accurately how much policy is good enough?

@ absoltuezero mentioned "Not every state allows for wage garnishment". How can I find what is the law against wage garnishment or retriment funds in Delaware and PA?

P.S. I reached out to State Farm they quoted $200 for 1M option. But after reading comments I am now wondering if I should increase it to 2M.
Accidents can happen at any time, but let’s say you don’t have an accident but your lips were greased when speaking and you slander someone-the umbrella will cover you for that too!

A $1 million dollar policy ensures you’ll have a good defense team in your corner - when was the last time you hired an attorney for $200 to work for you over the course of months or years? None. You might think it’s a waste of money until you realize that insurance companies don’t payout easily and they are representing both yours and their interest. Remember the umbrella sits on top of your auto liability limits and your house insurance limits. So coverage is greater than $1 million.

This will be money that is well spent. I don’t give it a second thought when paying for mine because the thought of subjecting my life’s work to a poor twist of fate is even more upsetting.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
DesertGator
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by DesertGator »

When you are 18 years old and have any or all of these insurances, you should buy umbrella: Auto, Renters/Homeowners, Boat, Motorcycle, RV. Not having signifiant assets is not sufficient insurance against a claim and judgement that can follow you for years.
Mordoch
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Mordoch »

DesertGator wrote: Thu Jun 18, 2020 3:26 pm When you are 18 years old and have any or all of these insurances, you should buy umbrella: Auto, Renters/Homeowners, Boat, Motorcycle, RV. Not having signifiant assets is not sufficient insurance against a claim and judgement that can follow you for years.
Again this is misinformation, or at least not limited enough in how it applies with respect to the umbrella part. As long as you avoid a DUI or a similar issue, no-one rational will not discharge a debt through bankruptcy if you have a huge verdict against you and essentially no assets.

Now there might be a separate possible moral argument for having umbrella insurance anyways, but claiming you need to from a financial standpoint is extremely misleading.
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cowdogman
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by cowdogman »

Mordoch wrote: Thu Jun 18, 2020 4:02 pm
DesertGator wrote: Thu Jun 18, 2020 3:26 pm When you are 18 years old and have any or all of these insurances, you should buy umbrella: Auto, Renters/Homeowners, Boat, Motorcycle, RV. Not having signifiant assets is not sufficient insurance against a claim and judgement that can follow you for years.
Again this is misinformation, or at least not limited enough in how it applies with respect to the umbrella part. As long as you avoid a DUI or a similar issue, no-one rational will not discharge a debt through bankruptcy if you have a huge verdict against you and essentially no assets.

Now there might be a separate possible moral argument for having umbrella insurance anyways, but claiming you need to from a financial standpoint is extremely misleading.
This an interesting argument--someone with few assets buying umbrella coverage to avoid a claim following him for years and also to avoid having to file bankruptcy. I think that is a valid argument for umbrella insurance, altho I don't think the (even minimal) umbrella insurance cost is worth what is a remote risk. As I said above, umbrella insurance is for when you have sufficient assets so that losing them all would be more than just a financial setback--that is, it would be a financial catastrophe. E.g., being sued when you have a $50,000 net worth vs. a $2,000,000 net worth.
ChicagoBear7
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by ChicagoBear7 »

Mordoch wrote: Thu Jun 18, 2020 4:02 pm Now there might be a separate possible moral argument for having umbrella insurance anyways, but claiming you need to from a financial standpoint is extremely misleading.
There is the moral argument and there is also the element of self preservation. Killing or maiming someone, not carrying a reasonable amount of insurance and then walking away from your responsibilities in bankruptcy might not go over well with some members of the victim's family. Do you want to walk around the rest of your life wondering if someone is going to take a page from The Godfather and pull a Bonasera? I'd rather pay a couple hundred bucks for an umbrella. You can't bring someone back that you kill in a car accident, but you can easily and cheaply carry enough insurance to not further provoke the victim's family.
oldfort
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by oldfort »

ChicagoBear7 wrote: Thu Jun 18, 2020 7:20 pm
Mordoch wrote: Thu Jun 18, 2020 4:02 pm Now there might be a separate possible moral argument for having umbrella insurance anyways, but claiming you need to from a financial standpoint is extremely misleading.
There is the moral argument and there is also the element of self preservation. Killing or maiming someone, not carrying a reasonable amount of insurance and then walking away from your responsibilities in bankruptcy might not go over well with some members of the victim's family. Do you want to walk around the rest of your life wondering if someone is going to take a page from The Godfather and pull a Bonasera? I'd rather pay a couple hundred bucks for an umbrella. You can't bring someone back that you kill in a car accident, but you can easily and cheaply carry enough insurance to not further provoke the victim's family.
This begs the question of what is a reasonable amount of insurance. In this verdict, the jury awarded $28 million. Should we all carry $28 million umbrella policy limits so we can fulfill our moral responsibilities and make the victim whole?

https://www.chicago-personal-injury-law ... paralyzed/
harrychan
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by harrychan »

Can anyone share a time or a story where umbrella insurance came to use?
This is not legal or certified financial advice but you know that already.
ChicagoBear7
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by ChicagoBear7 »

oldfort wrote: Thu Jun 18, 2020 7:44 pm
ChicagoBear7 wrote: Thu Jun 18, 2020 7:20 pm
Mordoch wrote: Thu Jun 18, 2020 4:02 pm Now there might be a separate possible moral argument for having umbrella insurance anyways, but claiming you need to from a financial standpoint is extremely misleading.
There is the moral argument and there is also the element of self preservation. Killing or maiming someone, not carrying a reasonable amount of insurance and then walking away from your responsibilities in bankruptcy might not go over well with some members of the victim's family. Do you want to walk around the rest of your life wondering if someone is going to take a page from The Godfather and pull a Bonasera? I'd rather pay a couple hundred bucks for an umbrella. You can't bring someone back that you kill in a car accident, but you can easily and cheaply carry enough insurance to not further provoke the victim's family.
This begs the question of what is a reasonable amount of insurance. In this verdict, the jury awarded $28 million. Should we all carry $28 million umbrella policy limits so we can fulfill our moral responsibilities and make the victim whole?

https://www.chicago-personal-injury-law ... paralyzed/
Concerning the quoted case:

Anderson Unlikely to Collect Full Amount
Despite the jury’s award of more than $28 million, it is unlikely that Anderson, now 23 years old, will collect the full amount. An attorney for Ely school district, one of the defendants in the lawsuit, noted that the school district is subject to a state statute limited liability, meaning the most their insurance would have to pay would be $1.5 million.

The jury awarded damages for past and future medical expenses, pain, suffering, emotional distress, and loss of earning capacity.

The state will pay for $15 million in medical expenses, according to reports. Ely School District will not have to pay anything to the family of the young woman who died in the Coleraine school bus crash, as the district was found not negligent in her death. The Foss family did settle a lawsuit with Salo’s family.

Because all defendants have insurance coverage that is substantially less than the amount awarded, Anderson will likely never see the full amount of the $28.6 million. The defendants also still have the right to appeal the award.


https://www.baumhedlundlaw.com/colerain ... bus-crash/

The numbers appear to be large as this involved a school bus, and the plaintiff was going for the deep pockets of various governmental bodies - the other drivers got thrown into the suit too. Not too many people could get a $28 million umbrella even if they wanted. However, having read many of these type of threads, there seem to be many BH's that track their new worth by the minute, but don't want to spend a couple hundred on an umbrella - this is what I don't understand.
oldfort
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by oldfort »

ChicagoBear7 wrote: Thu Jun 18, 2020 8:24 pm
oldfort wrote: Thu Jun 18, 2020 7:44 pm
ChicagoBear7 wrote: Thu Jun 18, 2020 7:20 pm
Mordoch wrote: Thu Jun 18, 2020 4:02 pm Now there might be a separate possible moral argument for having umbrella insurance anyways, but claiming you need to from a financial standpoint is extremely misleading.
There is the moral argument and there is also the element of self preservation. Killing or maiming someone, not carrying a reasonable amount of insurance and then walking away from your responsibilities in bankruptcy might not go over well with some members of the victim's family. Do you want to walk around the rest of your life wondering if someone is going to take a page from The Godfather and pull a Bonasera? I'd rather pay a couple hundred bucks for an umbrella. You can't bring someone back that you kill in a car accident, but you can easily and cheaply carry enough insurance to not further provoke the victim's family.
This begs the question of what is a reasonable amount of insurance. In this verdict, the jury awarded $28 million. Should we all carry $28 million umbrella policy limits so we can fulfill our moral responsibilities and make the victim whole?

https://www.chicago-personal-injury-law ... paralyzed/
Concerning the quoted case:

Anderson Unlikely to Collect Full Amount
Despite the jury’s award of more than $28 million, it is unlikely that Anderson, now 23 years old, will collect the full amount. An attorney for Ely school district, one of the defendants in the lawsuit, noted that the school district is subject to a state statute limited liability, meaning the most their insurance would have to pay would be $1.5 million.

The jury awarded damages for past and future medical expenses, pain, suffering, emotional distress, and loss of earning capacity.

The state will pay for $15 million in medical expenses, according to reports. Ely School District will not have to pay anything to the family of the young woman who died in the Coleraine school bus crash, as the district was found not negligent in her death. The Foss family did settle a lawsuit with Salo’s family.

Because all defendants have insurance coverage that is substantially less than the amount awarded, Anderson will likely never see the full amount of the $28.6 million. The defendants also still have the right to appeal the award.


https://www.baumhedlundlaw.com/colerain ... bus-crash/

The numbers appear to be large as this involved a school bus, and the plaintiff was going for the deep pockets of various governmental bodies - the other drivers got thrown into the suit too. Not too many people could get a $28 million umbrella even if they wanted. However, having read many of these type of threads, there seem to be many BH's that track their new worth by the minute, but don't want to spend a couple hundred on an umbrella - this is what I don't understand.
Focusing too much on the legal weeds of the case misses the big picture. The victim had $15 million in medical bills and long term care expenses alone. The maximum damage you can cause as a driver in a car accident isn't $1M or $5M or $10M. A $1M umbrella doesn't go very far to making a victim whole if you cause $20M in damages. $1 million is an arbitrary number. Most bogleheads could get a $28 million umbrella if they wanted to. Chubb offers limits up to $100 million.
oldfort
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by oldfort »

Another reason to get an umbrella policy, when you have a low net worth, is so you can get additional uninsured and underinsured motorist coverage.
Pete3
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Re: When does purchasing Umbrella Insurance Coverage makes sense?

Post by Pete3 »

oldfort wrote: Thu Jun 18, 2020 8:49 pm Focusing too much on the legal weeds of the case misses the big picture. The victim had $15 million in medical bills and long term care expenses alone. The maximum damage you can cause as a driver in a car accident isn't $1M or $5M or $10M. A $1M umbrella doesn't go very far to making a victim whole if you cause $20M in damages. $1 million is an arbitrary number. Most bogleheads could get a $28 million umbrella if they wanted to. Chubb offers limits up to $100 million.
A basic $1M umbrella policy gets a lawyer from the insurance company that is motivated and a policy that will cover 99% of all real-world lawsuit award amounts. Yes I made that statistic up.

Sure, most could get more coverage at great expense but like all things insurance its a risk versus costs analysis.
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