Should I reduce my Umbrella to from $2 to $1M?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
User avatar
Topic Author
Goldilocks
Posts: 95
Joined: Fri Sep 04, 2020 3:04 pm
Location: Tempe, AZ

Should I reduce my Umbrella to from $2 to $1M?

Post by Goldilocks »

We have a $2M Umbrella Policy through Farmers and the annual premium is increasing to $1,000 :oops: This rides over our 2 Vehicle Auto Policy with Bodily Injury Liability of $500k each person & accident and Home Policy with $500k personal Liability coverage. We have a responsible teen driver with a permit that will be fully licensed this summer.

It seems that we only need to protect about $1.4M in assets including our house in AZ worth $700k where we live with no mortgage plus about $700k in money market, CDs, Savings and mutual funds/ETFs in trust accounts.

We also have about 1.5M in IRAs and 401ks that should be shielded from potential lawsuits and creditors.
We started the $2M umbrella policy following a "better safe than sorry" philosophy 5 years ago when it was only about $500 and our other premiums were also much lower. We have made no claims and hate overpaying for unnecessary insurance especially with other painful premium hikes. At this point, our peace of mind will be better knowing that we're not forking over extra money to the Insurance Industry than with any extra "just in case" coverage.

We can save about $450 by reducing the umbrella to $1M and this seems to give the protection we need.

What do you think?
The 1st mix was too volatile, and the 2nd was too idle. But the 3rd allocation was just right!
magnusw
Posts: 28
Joined: Wed Dec 29, 2021 10:40 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by magnusw »

I would reduce it but really these captive agents will increase your premium until you drop it. I have a 2m policy which is about half that, and my broker shops it annually (right now it is with owners insurance). How that helps!
dagsboro
Posts: 218
Joined: Tue Aug 23, 2022 4:45 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by dagsboro »

I have seen several recommendations by financial experts who advise having an umbrella which covers up to all one has in assets including in your IRA's. I have read that a 401k is protected but I cannot confirm that. Personally, if I had a teenager that was driving, I would max out my insurance coverage.
avalpert1
Posts: 595
Joined: Sat Mar 02, 2024 6:15 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by avalpert1 »

You know what will happen the second you lower that coverage... bam a $2m judgement...

That aside, the amount of assets you need to protect aren't what should drive your coverage since the coverage is for an amount of liability. With $1m in coverage you would need a $2.4m judgement to be wiped out, with $2m in coverage you would need a $3.4m judgement to be wiped out - how likely is that $3.4m judgment vs. the $2.4m and is that likelihood wroth $450/yr to you depends on your own circumstances and risk preferences.
gch
Posts: 175
Joined: Thu May 30, 2019 2:47 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by gch »

I’m no expert, but it seems like you’ll get just as good of a lawyer from your insurance company if they 1MM on the line vs 2MM.

I also don’t see what your assets have to do with it. If you had a judgement against you for 5MM then you’d still have to cover your portion after the 2MM coverage ends.

I always assumed umbrella was to ensure your insurance coverage would provide the best possible legal care instead of settling for their limits and moving on. If so, then 1MM is pretty much just as good as 2MM
KlangFool
Posts: 32146
Joined: Sat Oct 11, 2008 12:35 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by KlangFool »

OP,

Shop for a better deal and keep the 2M Umbrella insurance.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
CeeKay1729
Posts: 60
Joined: Thu Aug 27, 2015 1:12 am

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by CeeKay1729 »

gch wrote: Mon May 13, 2024 4:45 pm I’m no expert, but it seems like you’ll get just as good of a lawyer from your insurance company if they 1MM on the line vs 2MM.

I also don’t see what your assets have to do with it. If you had a judgement against you for 5MM then you’d still have to cover your portion after the 2MM coverage ends.

I always assumed umbrella was to ensure your insurance coverage would provide the best possible legal care instead of settling for their limits and moving on. If so, then 1MM is pretty much just as good as 2MM
This. I have 1M coverage even though I have about 2M at risk. The umbrella is access to the lawyers that will work to settle for lower.
random_walker_77
Posts: 2255
Joined: Tue May 21, 2013 8:49 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by random_walker_77 »

gch wrote: Mon May 13, 2024 4:45 pm I’m no expert, but it seems like you’ll get just as good of a lawyer from your insurance company if they 1MM on the line vs 2MM.

I also don’t see what your assets have to do with it. If you had a judgement against you for 5MM then you’d still have to cover your portion after the 2MM coverage ends.

I always assumed umbrella was to ensure your insurance coverage would provide the best possible legal care instead of settling for their limits and moving on. If so, then 1MM is pretty much just as good as 2MM
Not a lawyer, but reading prior threads, I think this is how you'd want to think about it:

First, you need a victim to sustain such large damages. For example, brain damage to a knowledge worker, crippling someone etc

Then you want to think from the victim's perspective. Offer to settle for $1.5M (policy limits) or go for the full 2.9M (gch's 1.4 + 1.5 insurance)?
If they have a $2.5M policy, then it's offer to settle for $2.5M vs go for the full $3.9M (assuming they can justify such high damages).
Given the above, I think 1.5M is probably already enough. $1.5M, if accepted, is a sure thing vs a long and risky trial, followed by time to collect. Going for more (future wages) is not very helpful as OP might just declare bankruptcy.

Now why would the victim, possibly w/ $3+M in future medical expenses, offer to settle for policy limits? It's to their advantage because
a) if the offer to settle is accepted, it's a sure thing, and avoids the torture of a lengthy legal process that they might lose. Lawyers like this because it's quick, less work, and a sure path to getting paid
b) if the offer to settle is declined, then the insurance company can end up on the hook for the whole judgement, which means that you're now going after much deeper pockets. This is good for the victim since now you can potentially recover more and is also clearly good for the person who bought the umbrella insurance since their personal assets are no longer at risk. Read about "duty to settle" and "taking the lid off the policy." I found this how-to for plaintiff lawyers to be a fascinating read (also covers a lot of the nuances and limitations): https://plaintiffmagazine.com/recent-is ... the-policy

Bottomline, buy enough insurance such that a victim would be willing to settle for policy limits, rather than take on the delay and risks of going to trial. If you've got $1.5M, then $1M is arguably enough. If you've got $5M at risk, then you probably want more than $1M of coverage.
miket29
Posts: 1127
Joined: Tue Jun 20, 2017 9:07 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by miket29 »

What I want with umbrella coverage is enough so that (a) I get a good legal defense (b) it's enough so that the plaintiff's lawyer advises them to settle for the insurance coverage rather than trying to sue for more. Even a larger verdict than the insurance coverage may end up being less after the increased legal fees for taking a case to trial, to say nothing of the delay

My concern with a $1M policy with significant personal assets is that (b) may no longer be true. And although I'm not a lawyer, I'd worry about whether or not in a case where liability is clear that the umbrella insurer could just hand you $1M and wish you luck, paying nothing for your defense. My umbrella policy says
We have a duty to provide a defense at our expense by counsel of our choice unless the loss is covered by your primary insurance or
other insurance. Our duty to defend any claim or suit arising out of a single loss ends when the applicable limit of liability is exhausted in the payment of judgments or settlements.
User avatar
Watty
Posts: 29189
Joined: Wed Oct 10, 2007 3:55 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by Watty »

Goldilocks wrote: Mon May 13, 2024 4:33 pm We have a responsible teen driver with a permit that will be fully licensed this summer.
........
We can save about $450 by reducing the umbrella to $1M and this seems to give the protection we need.
It would be good to research if you can expect to the rate to go up more when your kid gets their license.

It has been a long time but as I recall when my son had his learners permit our car insurance did not go up much, if any, when he was driving our cars with us in it since he was covered under our policy. It did go up a lot when he got his licence and especially when we got a third car and let him drive our old car.

If you add another car or anyone in your household gets an in an accident or gets a traffic ticket then expect the umbrella cost to go up a lot more or for them to even cancel your umbrella policy.

I don't remember all the details but when my college student son(no tickets or accidents) was on our insurance with a third car, and my wife had an minor fender bender or two on her record we were paying about $1,000 a year for a $1 million umbrella policy and I was concerned that they would cancel our policy. That was over 15 years ago when those amounts were worth a lot more.

Our assets were a fraction of yours but I decided to keep the umbrella policy not only to protect myself but to also protect our son if there was a lawsuit. The risk for him that I was concerned about was that he was a college student in a well paying field so if there was a judgement against him and he might have his future wages garnished for a long time.

The umbrella policy cost me a non-trivial amount of money but I could afford it so I bit the bullet and paid it, but it was only for about 5 years so it did not make a noticeable impact on my overall finances.

A lot depends on the rest of your finances but I would suspect that spending the extra $450 a year would not be a significant problem for you. If I was in your situation I would be real hesitant about reducing your umbrella policy when you will have a teenage driver which may be when you need it the most.

It would be good to get other quotes but if your current policy is competitive I would keep it.
JBTX
Posts: 11425
Joined: Wed Jul 26, 2017 12:46 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by JBTX »

It’s probably the teenager. Yes the premium increased but risk as increased, even a “responsible” teenager is still a teenager.

Having said that it still seems like an awful lot. I’d shop it.
tashnewbie
Posts: 4438
Joined: Thu Apr 23, 2020 12:44 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by tashnewbie »

I'd shop around.
User avatar
Sandtrap
Posts: 19807
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by Sandtrap »

Goldilocks wrote: Mon May 13, 2024 4:33 pm We have a $2M Umbrella Policy through Farmers and the annual premium is increasing to $1,000 :oops: This rides over our 2 Vehicle Auto Policy with Bodily Injury Liability of $500k each person & accident and Home Policy with $500k personal Liability coverage. We have a responsible teen driver with a permit that will be fully licensed this summer.

It seems that we only need to protect about $1.4M in assets including our house in AZ worth $700k where we live with no mortgage plus about $700k in money market, CDs, Savings and mutual funds/ETFs in trust accounts.

We also have about 1.5M in IRAs and 401ks that should be shielded from potential lawsuits and creditors.
We started the $2M umbrella policy following a "better safe than sorry" philosophy 5 years ago when it was only about $500 and our other premiums were also much lower. We have made no claims and hate overpaying for unnecessary insurance especially with other painful premium hikes. At this point, our peace of mind will be better knowing that we're not forking over extra money to the Insurance Industry than with any extra "just in case" coverage.

We can save about $450 by reducing the umbrella to $1M and this seems to give the protection we need.

What do you think?
Can you save 450 dollars with other cost cutting in other areas of your budget?
And, leave this policy and premium alone?

did you shop for other policies?

j :D
Wiki Bogleheads Wiki: Everything You Need to Know
User avatar
goingup
Posts: 4954
Joined: Tue Jan 26, 2010 12:02 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by goingup »

Several years ago our Farmers agent shopped umbrella policies for us and we ended up with Hudson for a few year and then RLI. Maybe your agent could do this for you? We now have bundled with USAA and the premium is less.
Call_Me_Op
Posts: 9928
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by Call_Me_Op »

miket29 wrote: Mon May 13, 2024 7:26 pm What I want with umbrella coverage is enough so that (a) I get a good legal defense (b) it's enough so that the plaintiff's lawyer advises them to settle for the insurance coverage rather than trying to sue for more. Even a larger verdict than the insurance coverage may end up being less after the increased legal fees for taking a case to trial, to say nothing of the delay

My concern with a $1M policy with significant personal assets is that (b) may no longer be true. And although I'm not a lawyer, I'd worry about whether or not in a case where liability is clear that the umbrella insurer could just hand you $1M and wish you luck, paying nothing for your defense. My umbrella policy says
We have a duty to provide a defense at our expense by counsel of our choice unless the loss is covered by your primary insurance or
other insurance. Our duty to defend any claim or suit arising out of a single loss ends when the applicable limit of liability is exhausted in the payment of judgments or settlements.
Well said, Mike, This is a good summary of how to look at the problem.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
soccerrules
Posts: 1398
Joined: Mon Nov 14, 2016 3:01 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by soccerrules »

you had me at "teen driver with a permit about to be fully licensed"

Stuff happens -- for sure keep the $2M and shop it around for a better price. If you don't get much better of a price, still keep the $2M it is a small price to pay to be adequately covered and hopefully sleep better at night.
Don't let your outflow exceed your income or your upkeep will be your downfall.
User avatar
Rocinante Rider
Posts: 478
Joined: Fri Aug 19, 2022 12:52 pm

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by Rocinante Rider »

Agree with prior comments including:
-Shop around.
-Amount of coverage needed usually has more to do with the size of a potential judgment than the size of your assets
-A higher coverage amount greatly increases the likelihood of a settlement that doesn't leave you at risk (e.g., "taking the lid off")

Spouse and I have two cars and a home, and we pay $640 after rebate for 5M coverage. We use insurance to cover catastrophic, life changing losses. A major personal injury lawsuit is one of the few things that could wipe us out financially. We don't pay for lower deductibles on collision, extended warranties, trip cancellation insurance, or coverage for other non-life-altering events. I would not SWAN with no or low umbrella coverage.
Mayacallie
Posts: 62
Joined: Sun Jul 23, 2023 10:24 am

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by Mayacallie »

Shopping around is key. Even variations between states and the same company can be drastic. We are retired, and migrate between 3 states and 3 homes. My $5 million policy was quoted at $950 - $1800 depending on location. Obviously, I chose the $950
FoolMeOnce
Posts: 1455
Joined: Mon Apr 24, 2017 11:16 am

Re: Should I reduce my Umbrella to from $2 to $1M?

Post by FoolMeOnce »

We have a $3 million umbrella for $624/yr. Shop around.

As others have said, matching coverage to your assets makes no sense.
Post Reply