Have I reach the Need for an Umbrella Policy?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
cresive
Posts: 462
Joined: Sat Nov 26, 2016 12:12 pm
Location: Virginia, USA
Contact:

Have I reach the Need for an Umbrella Policy?

Post by cresive »

Hello All,

Thanks for helping with this issue. I was reading the latest AARP magazine and they had a section on insurances. One that resonated with me is the need for an Umbrella Policy to protect you after your auto or homeowners’ policies were overwhelmed. I am trying to review my situation to determine whether I need such a policy. I am not a big speeder, or risk taker, so it is unlikely I will be in a situation where I caused a catastrophic accident, but you never know. I do have a 7-month-old, overly friendly puppy who is my big concern. For instance, what if she gets off the leash and goes to play with an older person and winds up knocking them down. This is my most probable reason to be sued.

Assets:

Home owner: Recently bought a home Value about $650,000-$680,000. Fully insured. Policy limit on liability is $300,000. Mortgage balance about $500,000.

Fully Employed: Salary about $150,000/year +/- very small bonus. I am about 5-9 years from retirement

Other Income: Own royalty rights for property in Texas. Typically receive about $1,000/month in oil royalties—note, the royalties are much, much less right now, but it has been up to $2,500/month when oil is expensive.

Condo in FL: Value about $260,000 and owe about $70,000. It is rented now but planning to sell when tenants move out. Rental income only covers expenses such as HOA, mortgage and taxes.

Retirement Funds:
Traditional IRA/401K about $950,000
Roth Ira/401K about $70,000

Brokerage: about $28,000—just opened a couple months ago

Other Savings: about $80,000 used as emergency funds.

Car: net zero as I owe about the cars value. Liability in my insurance is $250,000.

The way I understand things, my traditional IRA/401K accounts are somewhat protected from lawsuits. IF that is the case, I do not really have any assets to protect and won’t need any additional insurance. Am I missing something? I can easily afford a cost of $150-$300 for an umbrella policy. However, do I need one? If my major assets are my home (which isn't of great value due to the mortgage), my retirement funds (which should be protected) and future earnings, am I in a vulnerable position?

Thanks for any help with my decision.

Ben
User avatar
8foot7
Posts: 2280
Joined: Mon Jan 05, 2015 7:29 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by 8foot7 »

You are less vulnerable than others with the way your money is stationed in your accounts, yes, but I'd still encourage you to find an umbrella policy for around $100 (I pay $105 for $1 million of coverage). You are still protecting your emergency cash, your home equity, your brokerage account, and your future earnings. You will also get a lump sump when you sell your rental condo which you should think about.

One of the main benefits of the umbrella coverage is that you will get insurance company lawyers on real cases where your policy could come into play. The insurance company won't fold up, give you 250k (their underlying policy limit, for example) and tell you you're on your own.

I don't think it's worth $300, but I'd pay $150 or under for sure for the peace of mind that it's handled.
Last edited by 8foot7 on Sun Jul 12, 2020 8:12 am, edited 1 time in total.
Strayshot
Posts: 647
Joined: Thu Mar 05, 2015 8:04 am
Location: New Mexico

Re: Have I reach the Need for an Umbrella Policy?

Post by Strayshot »

I think you are failing to consider the lasting implications of a judgement against you. Yes, retirement accounts are protected in a majority of situations, but that doesn’t mean you are safe.

There are lots of good articles out there on why you should have an umbrella policy, but you can google for and read those yourself (or perhaps already have). In today’s litigious society I see an umbrella as essential. Even with a smaller policy in the $1M-2M range it will still bring the legal team from the insurer to bear on whoever is suing you. At hourly legal rates, a single event alone may pay for decades of an umbrella policy.

My opinion: just do it
User avatar
Watty
Posts: 20646
Joined: Wed Oct 10, 2007 3:55 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by Watty »

cresive wrote: Sun Jul 12, 2020 8:00 am This is my most probable reason to be sued.
Being in a car accident and getting sued for more than your coverage is also a huge concern.

Get the umbrella policy, you likely should have had one years ago.
tivattom
Posts: 103
Joined: Sat Apr 07, 2007 1:51 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by tivattom »

You own 2 properties. You definitely need umbrella insurance. Owning property exposes you to significant liability risks. Things such as trips and falls on sidewalls, workers on your property, and falling tree limbs are concerns. There is no choice to make here - buy the policy.
oldfort
Posts: 1720
Joined: Mon Mar 02, 2020 8:45 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by oldfort »

8foot7 wrote: Sun Jul 12, 2020 8:10 am One of the main benefits of the umbrella coverage is that you will get insurance company lawyers on real cases where your policy could come into play. The insurance company won't fold up, give you 250k (their underlying policy limit, for example) and tell you you're on your own.
This is a good reason not to get legal advice from the internet. Paying out the policy limits may not extinguish the "duty to defend" unless there is a release of liability against the insured. Under no circumstances, does an insurance company ever write a $250k check to the insured unless it's for a UM/UIM claim or property damage to an insured's vehicle.
Last edited by oldfort on Sun Jul 12, 2020 9:10 am, edited 2 times in total.
Topic Author
cresive
Posts: 462
Joined: Sat Nov 26, 2016 12:12 pm
Location: Virginia, USA
Contact:

Re: Have I reach the Need for an Umbrella Policy?

Post by cresive »

Thanks All!!
I was on the fence, but now am scared to death. I will research a good policy today!!

Ben
reln
Posts: 446
Joined: Fri Apr 19, 2019 4:01 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by reln »

cresive wrote: Sun Jul 12, 2020 8:00 am Hello All,

Thanks for helping with this issue. I was reading the latest AARP magazine and they had a section on insurances. One that resonated with me is the need for an Umbrella Policy to protect you after your auto or homeowners’ policies were overwhelmed. I am trying to review my situation to determine whether I need such a policy. I am not a big speeder, or risk taker, so it is unlikely I will be in a situation where I caused a catastrophic accident, but you never know. I do have a 7-month-old, overly friendly puppy who is my big concern. For instance, what if she gets off the leash and goes to play with an older person and winds up knocking them down. This is my most probable reason to be sued.

Assets:

Home owner: Recently bought a home Value about $650,000-$680,000. Fully insured. Policy limit on liability is $300,000. Mortgage balance about $500,000.

Fully Employed: Salary about $150,000/year +/- very small bonus. I am about 5-9 years from retirement

Other Income: Own royalty rights for property in Texas. Typically receive about $1,000/month in oil royalties—note, the royalties are much, much less right now, but it has been up to $2,500/month when oil is expensive.

Condo in FL: Value about $260,000 and owe about $70,000. It is rented now but planning to sell when tenants move out. Rental income only covers expenses such as HOA, mortgage and taxes.

Retirement Funds:
Traditional IRA/401K about $950,000
Roth Ira/401K about $70,000

Brokerage: about $28,000—just opened a couple months ago

Other Savings: about $80,000 used as emergency funds.

Car: net zero as I owe about the cars value. Liability in my insurance is $250,000.

The way I understand things, my traditional IRA/401K accounts are somewhat protected from lawsuits. IF that is the case, I do not really have any assets to protect and won’t need any additional insurance. Am I missing something? I can easily afford a cost of $150-$300 for an umbrella policy. However, do I need one? If my major assets are my home (which isn't of great value due to the mortgage), my retirement funds (which should be protected) and future earnings, am I in a vulnerable position?

Thanks for any help with my decision.

Ben
Yes.
User avatar
ram
Posts: 1656
Joined: Tue Jan 01, 2008 10:47 pm
Location: Midwest

Re: Have I reach the Need for an Umbrella Policy?

Post by ram »

Strayshot wrote: Sun Jul 12, 2020 8:12 am
My opinion: just do it
+1...
Ram
User avatar
8foot7
Posts: 2280
Joined: Mon Jan 05, 2015 7:29 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by 8foot7 »

oldfort wrote: Sun Jul 12, 2020 9:08 am
8foot7 wrote: Sun Jul 12, 2020 8:10 am One of the main benefits of the umbrella coverage is that you will get insurance company lawyers on real cases where your policy could come into play. The insurance company won't fold up, give you 250k (their underlying policy limit, for example) and tell you you're on your own.
This is a good reason not to get legal advice from the internet. Paying out the policy limits may not extinguish the "duty to defend" unless there is a release of liability against the insured. Under no circumstances, does an insurance company ever write a $250k check to the insured unless it's for a UM/UIM claim or property damage to an insured's vehicle.
It wasn't legal advice. It was advice to get umbrella insurance. Happy Sunday. :sharebeer
User avatar
tadamsmar
Posts: 9077
Joined: Mon May 07, 2007 12:33 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by tadamsmar »

cresive wrote: Sun Jul 12, 2020 8:00 am Other Income: Own royalty rights for property in Texas. Typically receive about $1,000/month in oil royalties—note, the royalties are much, much less right now, but it has been up to $2,500/month when oil is expensive.
Note that this may not be covered by personal umbrella liability insurance. It's not business/professional insurance (but my umbrella insurance did cover a farm and a rental house. It covers a limited number of rental properties).

I would check on this with the insurer.
User avatar
tadamsmar
Posts: 9077
Joined: Mon May 07, 2007 12:33 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by tadamsmar »

cresive wrote: Sun Jul 12, 2020 8:00 am I am not a big speeder, or risk taker, so it is unlikely I will be in a situation where I caused a catastrophic accident, but you never know. I do have a 7-month-old, overly friendly puppy who is my big concern. For instance, what if she gets off the leash and goes to play with an older person and winds up knocking them down. This is my most probable reason to be sued.
The biggest risk will very likely still be automobile accidents. It not just the probability of being sued. It the amount you would be liable for. You dog is unlikely to break a young person's neck and put them is long-term care for life.
JD2775
Posts: 607
Joined: Thu Jul 09, 2015 10:47 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by JD2775 »

I have just over half the retirement money saved that you do, am a renter (not homeowner) and I got an umbrella policy anyway last year. Went through Geico (where my car/renters insurance is). $140/year for 1 million dollar policy. Its cheap insurance to have.
fittan
Posts: 265
Joined: Wed Mar 30, 2016 1:58 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by fittan »

Hijacking this tread a bit....some of you have mentioned paying $100 to $140/year for $1 million coverage. My Geico umbrella is $252/year (same $1 million coverage). Am I paying too much?
oldfort
Posts: 1720
Joined: Mon Mar 02, 2020 8:45 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by oldfort »

fittan wrote: Mon Jul 13, 2020 10:50 am Hijacking this tread a bit....some of you have mentioned paying $100 to $140/year for $1 million coverage. My Geico umbrella is $252/year (same $1 million coverage). Am I paying too much?
Umbrella pricing varies based on the number of drivers in a household, driving record, age of drivers, state, limits in the primary insurance, and in some cases zip code. How do you expect anyone to know if you're paying too much without more information?
testing321
Posts: 215
Joined: Sat Oct 25, 2014 6:46 pm
Location: kansas city

Re: Have I reach the Need for an Umbrella Policy?

Post by testing321 »

oldfort wrote: Sun Jul 12, 2020 9:08 amPaying out the policy limits may not extinguish the "duty to defend" unless there is a release of liability against the insured. Under no circumstances, does an insurance company ever write a $250k check to the insured unless it's for a UM/UIM claim or property damage to an insured's vehicle.
This varies by state and is rather complex.
oldfort
Posts: 1720
Joined: Mon Mar 02, 2020 8:45 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by oldfort »

testing321 wrote: Mon Jul 13, 2020 11:52 am
oldfort wrote: Sun Jul 12, 2020 9:08 amPaying out the policy limits may not extinguish the "duty to defend" unless there is a release of liability against the insured. Under no circumstances, does an insurance company ever write a $250k check to the insured unless it's for a UM/UIM claim or property damage to an insured's vehicle.
This varies by state and is rather complex.
I don't see anything in your link suggesting an insurance company can pay the policy limits without a judgment or settlement and terminate the duty to defend.
obgraham
Posts: 1271
Joined: Mon Jan 28, 2013 7:30 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by obgraham »

One of the main benefits of the umbrella coverage is that you will get insurance company lawyers on real cases
This point is valid, regardless of whether some disagree with part of the post. When I was sued some years back, the large company where I have all my insurance jumped right in, took the case on, hired and watched the lawyers, etc. I did nothing, though they kept me well advised. And got the case dismissed, (with the aid of a private investigator).

My agent later told me that they generally are more helpful when there is an umbrella in place, if only that they realize their potential downside is a lot higher.

I think the need for an umbrella is clear, though it might vary depending on one's line of work.
ChicagoBear7
Posts: 74
Joined: Tue Jan 16, 2018 1:12 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by ChicagoBear7 »

oldfort wrote: Mon Jul 13, 2020 12:10 pm
testing321 wrote: Mon Jul 13, 2020 11:52 am
oldfort wrote: Sun Jul 12, 2020 9:08 amPaying out the policy limits may not extinguish the "duty to defend" unless there is a release of liability against the insured. Under no circumstances, does an insurance company ever write a $250k check to the insured unless it's for a UM/UIM claim or property damage to an insured's vehicle.
This varies by state and is rather complex.
I don't see anything in your link suggesting an insurance company can pay the policy limits without a judgment or settlement and terminate the duty to defend.
This definitely does vary by state. Here is New Jersey:

http://blog.wcmlaw.com/2016/12/duty-to- ... cy-limits/
oldfort
Posts: 1720
Joined: Mon Mar 02, 2020 8:45 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by oldfort »

ChicagoBear7 wrote: Mon Jul 13, 2020 3:00 pm
oldfort wrote: Mon Jul 13, 2020 12:10 pm
testing321 wrote: Mon Jul 13, 2020 11:52 am
oldfort wrote: Sun Jul 12, 2020 9:08 amPaying out the policy limits may not extinguish the "duty to defend" unless there is a release of liability against the insured. Under no circumstances, does an insurance company ever write a $250k check to the insured unless it's for a UM/UIM claim or property damage to an insured's vehicle.
This varies by state and is rather complex.
I don't see anything in your link suggesting an insurance company can pay the policy limits without a judgment or settlement and terminate the duty to defend.
This definitely does vary by state. Here is New Jersey:

http://blog.wcmlaw.com/2016/12/duty-to- ... cy-limits/
What's your point? I don't see anything in the link about an insurance company paying the policy limits in the absence of a settlement or judgment and walking away.
Last edited by oldfort on Mon Jul 13, 2020 3:09 pm, edited 1 time in total.
tibbitts
Posts: 11851
Joined: Tue Feb 27, 2007 6:50 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by tibbitts »

8foot7 wrote: Sun Jul 12, 2020 8:10 am You are less vulnerable than others with the way your money is stationed in your accounts, yes, but I'd still encourage you to find an umbrella policy for around $100 (I pay $105 for $1 million of coverage). You are still protecting your emergency cash, your home equity, your brokerage account, and your future earnings. You will also get a lump sump when you sell your rental condo which you should think about.

One of the main benefits of the umbrella coverage is that you will get insurance company lawyers on real cases where your policy could come into play. The insurance company won't fold up, give you 250k (their underlying policy limit, for example) and tell you you're on your own.

I don't think it's worth $300, but I'd pay $150 or under for sure for the peace of mind that it's handled.
I have a pretty simple lifestyle, no risk elements that I know of, but $1M coverage is closer to $300, so I think your $105 is not realistic for most people.
ChicagoBear7
Posts: 74
Joined: Tue Jan 16, 2018 1:12 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by ChicagoBear7 »

oldfort wrote: Mon Jul 13, 2020 3:02 pm
ChicagoBear7 wrote: Mon Jul 13, 2020 3:00 pm
oldfort wrote: Mon Jul 13, 2020 12:10 pm
testing321 wrote: Mon Jul 13, 2020 11:52 am
oldfort wrote: Sun Jul 12, 2020 9:08 amPaying out the policy limits may not extinguish the "duty to defend" unless there is a release of liability against the insured. Under no circumstances, does an insurance company ever write a $250k check to the insured unless it's for a UM/UIM claim or property damage to an insured's vehicle.
This varies by state and is rather complex.
I don't see anything in your link suggesting an insurance company can pay the policy limits without a judgment or settlement and terminate the duty to defend.
This definitely does vary by state. Here is New Jersey:

http://blog.wcmlaw.com/2016/12/duty-to- ... cy-limits/
What's your point? I don't see anything in the link about an insurance company paying the policy limits in the absence of a settlement or judgment and walking away.
From the cited article:

"In National Surety Corp. v. First Specialty Insurance Corp., the Superior Court ruled that an insurer may exhaust its policy to settle claims, even if that settlement did not end all claims. The court also ruled that once the settlement was approved and the policy limits were exhausted, the insurer "no longer obligated to provide a defense under the policy in connection with any outstanding claims."

So, if you injure/kill two or more people, it becomes a race to the courthouse. If the first settlement taps out the policy, there is no duty to defend any other claims.
oldfort
Posts: 1720
Joined: Mon Mar 02, 2020 8:45 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by oldfort »

ChicagoBear7 wrote: Mon Jul 13, 2020 3:22 pm
oldfort wrote: Mon Jul 13, 2020 3:02 pm
ChicagoBear7 wrote: Mon Jul 13, 2020 3:00 pm
oldfort wrote: Mon Jul 13, 2020 12:10 pm
I don't see anything in your link suggesting an insurance company can pay the policy limits without a judgment or settlement and terminate the duty to defend.
This definitely does vary by state. Here is New Jersey:

http://blog.wcmlaw.com/2016/12/duty-to- ... cy-limits/
What's your point? I don't see anything in the link about an insurance company paying the policy limits in the absence of a settlement or judgment and walking away.
From the cited article:

"In National Surety Corp. v. First Specialty Insurance Corp., the Superior Court ruled that an insurer may exhaust its policy to settle claims, even if that settlement did not end all claims. The court also ruled that once the settlement was approved and the policy limits were exhausted, the insurer "no longer obligated to provide a defense under the policy in connection with any outstanding claims."

So, if you injure/kill two or more people, it becomes a race to the courthouse. If the first settlement taps out the policy, there is no duty to defend any other claims.
This scenario doesn't hinge on the presence or lack of umbrella insurance. Umbrella policies have no more duty to defend after the limits are exhausted in settlement or judgement than your homeowner's or auto policy. You can have a $5M umbrella which pays out the policy limits to the first person you kill and leaves you on the hook for the defense of the second death. The only real solution to this is carry some astronomically large $30M+ umbrella policy to cover the absolute worst case scenario.
testing321
Posts: 215
Joined: Sat Oct 25, 2014 6:46 pm
Location: kansas city

Re: Have I reach the Need for an Umbrella Policy?

Post by testing321 »

oldfort wrote: Mon Jul 13, 2020 12:10 pm
testing321 wrote: Mon Jul 13, 2020 11:52 am
oldfort wrote: Sun Jul 12, 2020 9:08 amPaying out the policy limits may not extinguish the "duty to defend" unless there is a release of liability against the insured. Under no circumstances, does an insurance company ever write a $250k check to the insured unless it's for a UM/UIM claim or property damage to an insured's vehicle.
This varies by state and is rather complex.
I don't see anything in your link suggesting an insurance company can pay the policy limits without a judgment or settlement and terminate the duty to defend.
Anyone interested in this topic should just read the article in the link. Here is the powerpoint that goes with the article.
Woodshark
Posts: 493
Joined: Fri Jan 07, 2011 4:09 pm

Re: Have I reach the Need for an Umbrella Policy?

Post by Woodshark »

Just for a frame of reference. We're retired, in our late 50's. Live in a low population area with no children. Just us two drivers and we own our home. Our 2 mil umbrella policy is $276.
Post Reply