How much Umbrella Insurance coverage needed?

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investingdad
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Re: How much Umbrella Insurance coverage needed?

Post by investingdad » Tue Nov 01, 2016 8:04 am

When I bumped up to a $5 million umbrella, Erie had to get home office approval first. But there was no issue and I think it costs us $700 a year or so. We had to make some changes to our home and auto coverage first which wasn't a big deal.

And you know what?

During trick or treating last night we had pumpkins near our front door in which I had small candles lit to light them up. A kid had an inflatable dinosaur costume with big tail and he knocked one of the pumpkins over. Fortunately my wife was there when it happened and nothing happened...but I imagined his costume catching fire and severely burning him.

And that's why we have a big fat umbrella...

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Wildebeest
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Re: How much Umbrella Insurance coverage needed?

Post by Wildebeest » Mon Jul 24, 2017 6:59 pm

I do not think we need any Umbrella. I would like to think we are self insured. However I am overruled.

My tale is that we have one million dollar umbrella for $ 202 through Travellers.

We had home owners with Encompass till they wanted to increase our premium by $ 300 a year because we had wood burning stove. We do not.

When I called to find out why they were under the mistaken impression that we had a wood burning stove they told us that that Google Earth showed that we had. I told them they were wrong and invited them over to check for themselves and instead they promptly canceled our policy without notifying us they had.

We were not even aware they had canceled our policy 5 months ago till we recently tried a new no cost Line of credit on our home as our emergency fund when we were notified our lines of credit had run out.

I would like to thank Encompass for attempting hiking our rates. We now have a home owners insurance through Travellers' for 50 % less than Encompass. Encompass also had canceled our car insurance 2 + years ago without warning and we had days before we got Geico insurance for $ 500 a year less.We now have our car insurance through Travellers and car insurance is even $ 300 less a year.

Part of our yearly due diligence will be to compare insurance rates. If we had not tried to get line of credit on our home we would have saved even more not being aware our home insurance had been canceled.

PS we got a "free one million dollar umbrella policy" and more with all the money we saved by being forced to find new insurance. We never put a claim in so far and I doubt we will in future.
The Golden Rule: One should treat others as one would like others to treat oneself.

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steadyeddy
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Re: How much Umbrella Insurance coverage needed?

Post by steadyeddy » Mon Jul 24, 2017 8:09 pm

KlangFool wrote:Umbrella insurance serves 2 purposes:

A) Protect you when you are not at fault.

B) Compensate the other party when you are at fault without financially ruined you.

KlangFool
My understanding is that a typical umbrella policy provides no protection when you are not at fault. If you suffer a major loss, and the at-fault party has only $60k of liability coverage, that is all you can get. Your coverage might also contain some "underinsured" coverage that will then kick in to cover some more of your loss, but the vast majority of umbrella policies do not contain any coverage for losses caused by uninsured or underinsured parties. This can pose a major gap in coverage considering how many drivers these days are underinsured, or not insured at all.

ncbill
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Re: How much Umbrella Insurance coverage needed?

Post by ncbill » Tue Jul 25, 2017 3:52 pm

From what I've read nearly all umbrellas also exclude own household liability,

So if your child is injured in an auto accident while it's driven by a parent/sibling there's no coverage under the umbrella.

For that reason I've seen buying the maximum Combined Uninsured and Underinsured Motorists limit offered recommended on other sites.

GEICO offers up to $1 million/$1 million, IIRC.
steadyeddy wrote:
KlangFool wrote:Umbrella insurance serves 2 purposes:

A) Protect you when you are not at fault.

B) Compensate the other party when you are at fault without financially ruined you.

KlangFool
My understanding is that a typical umbrella policy provides no protection when you are not at fault. If you suffer a major loss, and the at-fault party has only $60k of liability coverage, that is all you can get. Your coverage might also contain some "underinsured" coverage that will then kick in to cover some more of your loss, but the vast majority of umbrella policies do not contain any coverage for losses caused by uninsured or underinsured parties. This can pose a major gap in coverage considering how many drivers these days are underinsured, or not insured at all.

ttcbj
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Re: How much Umbrella Insurance coverage needed?

Post by ttcbj » Fri Jan 12, 2018 4:33 pm

I was struggling with this issue recently, because my wife got in several fender benders and we got kicked off our umbrella liability. During my research on what to do, I came across this thread, and several others in which people pointed out that its hard to come up with a meaningful rule for how much coverage you should have. If you have, say $2M in liquid assets, carry $4M in coverage, and get hit with a $6M judgement, you are still in trouble. A $6M judgement is unlikely, but not inconceivable (for example, you kill or gravely disable a young, highly paid executive with kids in a car accident).

Anyway, our $5M umbrella liability policy was going to be very expensive to replace, so what we ended up doing was establishing an irrevocable trust with 3rd party trustees that contains our assets. This is the basic idea (this is not the law firm we used, just an explanation I found through google):

https://www.sutlaw.com/sophisticated-as ... -technique

Now, we have a $1M umbrella liability policy, and our assets in an irrevocable trust controlled by trustees who we trust (they can only use the money for our benefit, or our children's, but they can refuse to give it to us or, in particular, to our creditors in a liability claim).

This is a big step, you really have to trust the trustees, and they have to manage the money going forward. You basically give up all control. But, if you have a boglehead-y strategy, its not so hard to give up control of your long term assets. You cannot move money in/out frequently, so its just good for very long-term retirement assets.

I think of our new strategy as two tiered: $1.5M in umbrella liability to fend of frivolous lawsuits (we have $500K from the base insurance), but then if we really did have a legitimate large liability claim, the trust should protect our retirement.

Anyway, the only way to do this would be to hire a very competent estate-planning lawyer in your state, but if you googled this thread and read through it, this path is something you could consider.

MikeT
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Re: How much Umbrella Insurance coverage needed?

Post by MikeT » Sat Jan 13, 2018 6:55 am

Thanks for the link. Interesting.

Wouldn't the asset be eventually subject to creditors when eventually distributed to the beneficiary of the trust?

“spendthrift” provision which prevents creditors from making claims against the beneficiaries’ interest in the trust and also prevents the beneficiaries from transferring or pledging their interests. If the trust includes these protections, the only time assets would become subject to creditors of a beneficiary is after the assets are distributed from the trust and become the beneficiary’s personal property."

I placed a rental property in a revocable living trust which maybe offers less protection than the irrevokable one.

-Mike

afan
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Re: How much Umbrella Insurance coverage needed?

Post by afan » Sat Jan 13, 2018 11:50 am

Went through these issues with an expert attorney.

How much umbrella insurance to get? "Get a lot. It is far cheaper and simpler than any other set protection options. It would make no sense to do anything else while skimping on umbrella coverage"

Are retirement plan assets protected? "While in the plan, the protection depends on both state and federal law and varies depending on the type of plan. All have some protection with ERISA plans having the most. When money comes out of the plan all protection is lost. Remember that for traditional plans you will be forced to take money out due to required distributions. If you are worried enough about this you can do Roth conversions, pay a whopping income tax bill and eliminate required distributions. But you will still need money to live on after retirement. The creditor may not be able to force you to take money out, but your need for support will force this."

Creating an asset protection trust. They may or may not work depending on a lot of complicated legal and factual issues. Among these are the extent to which you access the money in the trust. It is much better protected if you never touch it than if you use it routinely. If only one of a married couple has high exposure to lawsuits and the marriage is very stable then one could create an asset protection trust with only the low risk person as a beneficiary. Any distributions go to the low risk person. The high risk person thus has no assets for creditors to attack. Need truly independent trustees. In the asset protection states this usually means a bank. Bank trustees cost money. The actual effectiveness of these domestic asset protection trusts has rarely been litigated to the end. Some legal experts think that they will not work.

If your exposure is high enough it might make sense to layer an asset protection trust on top of a large umbrella insurance policy. The premiums will be peanuts compared to the costs of creating and maintaining the trust. But to maximize the expected value of the trust do not put into it any money you think you will need. They work best when you keep more than enough in your own name or a revocable trust, either of which are available to creditors, and use the irrevocable trust to park several million for a rainy day fund that you will likely never use. As soon as you start using it the value of the protection begins to erode. By how much depends on these complicated legal and factual issues that have never been definitely resolved.

If you do not have that extra several million the trust maneuver is not for you.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

afan
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Re: How much Umbrella Insurance coverage needed?

Post by afan » Sat Jan 13, 2018 11:56 am

MikeT wrote:
Sat Jan 13, 2018 6:55 am
Wouldn't the asset be eventually subject to creditors when eventually distributed to the beneficiary of the trust?

“spendthrift” provision which prevents creditors from making claims against the beneficiaries’ interest in the trust and also prevents the beneficiaries from transferring or pledging their interests. If the trust includes these protections, the only time assets would become subject to creditors of a beneficiary is after the assets are distributed from the trust and become the beneficiary’s personal property."

I placed a rental property in a revocable living trust which maybe offers less protection than the irrevokable one.

-Mike
The typical plan has the trustee paying bills for the beneficiary rather than distributing money to the beneficiary.

The revocable living trust offers no asset protection at all. An LLC might. How much depends on how it is set up and run and on your state law.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

afan
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Re: How much Umbrella Insurance coverage needed?

Post by afan » Sat Jan 13, 2018 12:41 pm

Interesting link. It is like many ads from lawyers in asset protection states that make this sound more reliable than it may be. It certainly lists only a small set of the asset protection states.

A lobby of banks and attorneys in these states gets the legislature to pass laws making a state a destination for asset protection trusts. These usually require an instate attorney and bank trustee. The states are competing with one another for the business and creating least that have rarely been tested. For this reason they attract people whose situations and plans are, at beat, on the margins of legality. Our attorney, not in an asset protection state, characterized much of what is going on as "the wild west" and was skeptical about much of it.

Given the people in the business there have been some shady deals, banks failing and customers ending up with huge legal bills and lost cases.

People trying to be aggressive about these trusts need to recognize that the better they sound the more they are on the fringe with little tested experience in how well they work. They should also realize that they could spend a lot of money on legal bills defending them if it came to that.

That is why umbrella insurance should be in place before even considering an asset protection trust. The trusts only make sense for people who have risks against which they cannot insure. A surgeon might want protection beyond the maximum malpractice insurance she can buy. But these trusts are really for people whose business requires them to personal guarantee debts and have the risk of ruin if things go badly. Their cost and complexity and the alternative of insurance for most people mean that not many will find asset protection trusts worthwhile.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

michaeljc70
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Re: How much Umbrella Insurance coverage needed?

Post by michaeljc70 » Sat Jan 13, 2018 2:12 pm

ttcbj wrote:
Fri Jan 12, 2018 4:33 pm
I was struggling with this issue recently, because my wife got in several fender benders and we got kicked off our umbrella liability. During my research on what to do, I came across this thread, and several others in which people pointed out that its hard to come up with a meaningful rule for how much coverage you should have. If you have, say $2M in liquid assets, carry $4M in coverage, and get hit with a $6M judgement, you are still in trouble. A $6M judgement is unlikely, but not inconceivable (for example, you kill or gravely disable a young, highly paid executive with kids in a car accident).

Anyway, our $5M umbrella liability policy was going to be very expensive to replace, so what we ended up doing was establishing an irrevocable trust with 3rd party trustees that contains our assets. This is the basic idea (this is not the law firm we used, just an explanation I found through google):

https://www.sutlaw.com/sophisticated-as ... -technique

Now, we have a $1M umbrella liability policy, and our assets in an irrevocable trust controlled by trustees who we trust (they can only use the money for our benefit, or our children's, but they can refuse to give it to us or, in particular, to our creditors in a liability claim).

This is a big step, you really have to trust the trustees, and they have to manage the money going forward. You basically give up all control. But, if you have a boglehead-y strategy, its not so hard to give up control of your long term assets. You cannot move money in/out frequently, so its just good for very long-term retirement assets.

I think of our new strategy as two tiered: $1.5M in umbrella liability to fend of frivolous lawsuits (we have $500K from the base insurance), but then if we really did have a legitimate large liability claim, the trust should protect our retirement.

Anyway, the only way to do this would be to hire a very competent estate-planning lawyer in your state, but if you googled this thread and read through it, this path is something you could consider.
That seems pretty extreme for having such a low likelyhood of a claim over $1.5M. Won't the accidents fall off in 2-3 years so you are eligible again? I know it varies by state, but some assets are already protected typically.

afan
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Re: How much Umbrella Insurance coverage needed?

Post by afan » Sun Jan 14, 2018 10:15 am

Puzzled by this. The legal costs of setting up and maintaining the trust have to be much more than even an expensive umbrella policy.

We have not had any liability claims but I was quoted prices for umbrella coverage. A 5 million dollar policy would have been a lot less than one hour of fees for an expert attorney to set up a trust.

I also don't get the references to retirement. Retirement funds already have some asset protection and I don't know how one gets those funds into an asset protection trust.

Maybe ttcbj means money for retirement that is not held in retirement accounts??

Having the trust created by an expert could easily run $10,000 in legal fees, plus more money every year to the trustee in the asset protection state. If the trust was not created by an expert it has no chance of being done right. If there is not a corporate trustee experienced in these trusts it has essentially no chance of working.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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