How much umbrella insurance?

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ncbill
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Location: Western NC

Re: How much umbrella insurance?

Post by ncbill » Sun Jun 28, 2020 9:54 am

oldfort wrote:
Sun Jun 28, 2020 8:30 am
ncbill wrote:
Sun Jun 28, 2020 8:06 am
travelspot wrote:
Sat Jun 27, 2020 1:08 pm
There is plenty of good advice here already (except for the claim about someone easily obtaining your investment account balances before a judgment is obtained - no). I will add a reason to obtain more umbrella coverage than just the basic $1 million.

Obviously the reason to have umbrella coverage is in case you are sued and want to protect your personal assets. In the event that you are likely to be determined at fault and the damages well exceed $1 million, sometimes the insurance company will simply escrow its entire policy amount with the court, and then wash its hands of the situation. If that insurance carrier also owed you a legal defense, the duty to defend would be extinguished if it’s already paid the policy limits. That could leave you on your own and paying for a lawyer out of your pocket, which can be very expensive.

If your umbrella policy is larger, the insurance carrier has more reason to stay in and fight.
No, what happens is that you hire your own attorney who ends up getting paid by the insurer, up to the policy limit.

I've seen it done by a business facing a personal injury suit where the insurance company's legal team wanted to pay out the limit and walk away, leaving the business on the hook for any excess judgement over the limit.

The business hired a lawyer more specialized than counsel supplied by the insurer, went to trial, and was found not liable.

The insurer paid the legal bills which were, IIRC, around half the policy limit...so, technically, the business saved the insurer money, though of course that didn't stop the insurer from dropping them at renewal.
Neither of these is necessarily true in an individual, not a business policy. Read your policy, but typically the mass market carriers will only pay the legal counsel they choose to defend a suit. You can't hire your own legal counsel and bill the insurance company, if the insurance company wants to settle. On the flip side, the insurance company normally can't pay out the policy limits and walk away, unless they get a release of liability against their insured. Where interpleader agreements become important is when there are multiple plaintiffs and paying out the policy limits to settle all claims by plaintiff A could leave nothing left to pay the claims of plaintiff B.
I'm sure the insurer agreed to avoid a bad faith claim since once settlement negotiations failed they made it clear they wanted to pay out the policy limit and walk away. Again, this was in a business liability case, and I hope it would never occur with an individual under a personal umbrella.

Lee_WSP
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Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Sun Jun 28, 2020 10:04 am

ncbill wrote:
Sun Jun 28, 2020 9:54 am
oldfort wrote:
Sun Jun 28, 2020 8:30 am
ncbill wrote:
Sun Jun 28, 2020 8:06 am
travelspot wrote:
Sat Jun 27, 2020 1:08 pm
There is plenty of good advice here already (except for the claim about someone easily obtaining your investment account balances before a judgment is obtained - no). I will add a reason to obtain more umbrella coverage than just the basic $1 million.

Obviously the reason to have umbrella coverage is in case you are sued and want to protect your personal assets. In the event that you are likely to be determined at fault and the damages well exceed $1 million, sometimes the insurance company will simply escrow its entire policy amount with the court, and then wash its hands of the situation. If that insurance carrier also owed you a legal defense, the duty to defend would be extinguished if it’s already paid the policy limits. That could leave you on your own and paying for a lawyer out of your pocket, which can be very expensive.

If your umbrella policy is larger, the insurance carrier has more reason to stay in and fight.
No, what happens is that you hire your own attorney who ends up getting paid by the insurer, up to the policy limit.

I've seen it done by a business facing a personal injury suit where the insurance company's legal team wanted to pay out the limit and walk away, leaving the business on the hook for any excess judgement over the limit.

The business hired a lawyer more specialized than counsel supplied by the insurer, went to trial, and was found not liable.

The insurer paid the legal bills which were, IIRC, around half the policy limit...so, technically, the business saved the insurer money, though of course that didn't stop the insurer from dropping them at renewal.
Neither of these is necessarily true in an individual, not a business policy. Read your policy, but typically the mass market carriers will only pay the legal counsel they choose to defend a suit. You can't hire your own legal counsel and bill the insurance company, if the insurance company wants to settle. On the flip side, the insurance company normally can't pay out the policy limits and walk away, unless they get a release of liability against their insured. Where interpleader agreements become important is when there are multiple plaintiffs and paying out the policy limits to settle all claims by plaintiff A could leave nothing left to pay the claims of plaintiff B.
I'm sure the insurer agreed to avoid a bad faith claim since once settlement negotiations failed they made it clear they wanted to pay out the policy limit and walk away. Again, this was in a business liability case, and I hope it would never occur with an individual under a personal umbrella.
I don't see how the insurer can act in good faith by paying out the policy limits without a settlement. It violates the contractual duty to defend.

More practically speaking, where would the money go? It can't just go straight to the plaintiff nor the defendant.
Last edited by Lee_WSP on Sun Jun 28, 2020 10:58 pm, edited 1 time in total.

travelspot
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Joined: Sun Dec 16, 2018 11:40 pm

Re: How much umbrella insurance?

Post by travelspot » Sun Jun 28, 2020 10:13 pm

That’s what my initial reaction was too, but I’ve seen it done. I agree the insurer can’t pay directly to the plaintiff(s) without getting a release of liability for its insured, but it can give the policy limits to the court - which holds the funds in escrow pending resolution of the case. Result being the insurer has no more duties to the insured.
If you don't do stuff, then you don't do stuff.

Lee_WSP
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Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Sun Jun 28, 2020 10:58 pm

travelspot wrote:
Sun Jun 28, 2020 10:13 pm
That’s what my initial reaction was too, but I’ve seen it done. I agree the insurer can’t pay directly to the plaintiff(s) without getting a release of liability for its insured, but it can give the policy limits to the court - which holds the funds in escrow pending resolution of the case. Result being the insurer has no more duties to the insured.
That does not release them from the duty to defend.

oldfort
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Re: How much umbrella insurance?

Post by oldfort » Sun Jun 28, 2020 11:46 pm

Lee_WSP wrote:
Sun Jun 28, 2020 10:58 pm
travelspot wrote:
Sun Jun 28, 2020 10:13 pm
That’s what my initial reaction was too, but I’ve seen it done. I agree the insurer can’t pay directly to the plaintiff(s) without getting a release of liability for its insured, but it can give the policy limits to the court - which holds the funds in escrow pending resolution of the case. Result being the insurer has no more duties to the insured.
That does not release them from the duty to defend.
This may vary with state law.
https://www.casemine.com/judgement/us/5 ... 4934762aa4

oldfort
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Re: How much umbrella insurance?

Post by oldfort » Sun Jun 28, 2020 11:53 pm

travelspot wrote:
Sun Jun 28, 2020 10:13 pm
That’s what my initial reaction was too, but I’ve seen it done. I agree the insurer can’t pay directly to the plaintiff(s) without getting a release of liability for its insured, but it can give the policy limits to the court - which holds the funds in escrow pending resolution of the case. Result being the insurer has no more duties to the insured.
I think it would be fair to say in most cases, interpleader without a release of liability against the insured, would be an act of bad faith. Another point to consider is in some of these horrific cases: the damages are astronomical.
Farm Bureau's insured, Copertino, lost control of his car, crossed a median and hit an oncoming car, causing the deaths of five teenagers and severe injuries to seven others, including a 14-year old girl who was rendered a quadriplegic.


http://www.michbar.org/file/barjournal/ ... le3898.pdf
https://www.duanemorris.com/articles/en ... _4431.html

Lee_WSP
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Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Sun Jun 28, 2020 11:54 pm

oldfort wrote:
Sun Jun 28, 2020 11:46 pm
Lee_WSP wrote:
Sun Jun 28, 2020 10:58 pm
travelspot wrote:
Sun Jun 28, 2020 10:13 pm
That’s what my initial reaction was too, but I’ve seen it done. I agree the insurer can’t pay directly to the plaintiff(s) without getting a release of liability for its insured, but it can give the policy limits to the court - which holds the funds in escrow pending resolution of the case. Result being the insurer has no more duties to the insured.
That does not release them from the duty to defend.
This may vary with state law.
https://www.casemine.com/judgement/us/5 ... 4934762aa4
That case does not deal with the primary insured. It is an additional insured.

The primary insured defaulted. I suppose they were bankrupt and went out of business entirely. Don't really know, I'm hazarding a guess.

Either way, this is a commercial policy and involves an additional insured which doesn't even have a contractual relationship with the insurer.

There was also a mediation agreement, so it in fact did settle but somehow fell out.

Either way, this falls under the heinous acts scenario I laid out earlier.

It was actually partly denied regarding the defense costs up until the point of the tender.

I surmise that the plaintiffs quickly settled and figured out how they want to divvy up the assets unless the last defendant truly had something worth going after.

michaeljc70
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Re: How much umbrella insurance?

Post by michaeljc70 » Mon Jun 29, 2020 9:58 am

Lee_WSP wrote:
Wed Jun 17, 2020 10:51 am
Honestly , the vast majority of people do not need an umbrella policy.

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

Those are all covered under auto and home owners. Get a million dollar policy on each and if you some how have even more liability exposures you absolutely positively want to cover, then look into an umbrella policy.
I tend to agree. The vast majority of households don't have an umbrella policy. I don't have one, but it is on my list of things to do. It has been on the list for a long time but isn't a priority to me. My biggest concern is I am to blame for a serious auto accident of a high income person (that may also be driving a very expensive car which isn't that uncommon around here).

oldfort
Posts: 1048
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Re: How much umbrella insurance?

Post by oldfort » Mon Jun 29, 2020 11:38 am

afan wrote:
Fri Jun 26, 2020 11:18 pm
This question comes up frequently. It seems the only people who know the risks and costs of personal liability and therefore how much insurance one should have aren't talking.

Actuaries for insurance companies who write these policies know the answers. Unfortunately, no one who has identified themselves as such a person has commented on the umbrella threads I have seen. Lots of speculation from people who, apparently, are not experts.
Rumors about the risk of big losses. One off anecdotes. No data.

It is good that the insurance is cheap. No need to stress about it too much.

If any actuaries in this space want to chime in, bogleheads would love to know the answers.
Even without the actuary data, we have a very good idea of what the risk of liability is.

1) If you can buy $1 million in coverage for $200, then the odds of paying out the policy limits must be no more than 2 in 10,000. If the probability was more than 0.02%, the insurance company would be losing money.
2) 80-90% of personal umbrella claims are for motor vehicle accidents.
3) Data on large verdicts is publicly available.
viewtopic.php?t=131550

ncbill
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Location: Western NC

Re: How much umbrella insurance?

Post by ncbill » Mon Jun 29, 2020 1:23 pm

michaeljc70 wrote:
Mon Jun 29, 2020 9:58 am
Lee_WSP wrote:
Wed Jun 17, 2020 10:51 am
Honestly , the vast majority of people do not need an umbrella policy.

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

Those are all covered under auto and home owners. Get a million dollar policy on each and if you some how have even more liability exposures you absolutely positively want to cover, then look into an umbrella policy.
I tend to agree. The vast majority of households don't have an umbrella policy. I don't have one, but it is on my list of things to do. It has been on the list for a long time but isn't a priority to me. My biggest concern is I am to blame for a serious auto accident of a high income person (that may also be driving a very expensive car which isn't that uncommon around here).
Does it really have to be someone with high income?

I added an umbrella policy once my oldest kid started driving at age 16.

I had a college friend whose younger sibling borrowed their car, wasn't paying attention, hit another vehicle & permanently crippled the young, single parent who was driving. Given my friend was in grad school at the time his liability limits were probably pretty low.

So I wanted a lot more coverage in case I or one of my kids does something as negligent.

Lee_WSP
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Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Mon Jun 29, 2020 2:16 pm

michaeljc70 wrote:
Mon Jun 29, 2020 9:58 am
Lee_WSP wrote:
Wed Jun 17, 2020 10:51 am
Honestly , the vast majority of people do not need an umbrella policy.

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

Those are all covered under auto and home owners. Get a million dollar policy on each and if you some how have even more liability exposures you absolutely positively want to cover, then look into an umbrella policy.
I tend to agree. The vast majority of households don't have an umbrella policy. I don't have one, but it is on my list of things to do. It has been on the list for a long time but isn't a priority to me. My biggest concern is I am to blame for a serious auto accident of a high income person (that may also be driving a very expensive car which isn't that uncommon around here).
I'd be more worried about a van full of two families. Or a multi car incident.

afan
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Re: How much umbrella insurance?

Post by afan » Mon Jun 29, 2020 6:29 pm

oldfort wrote:
Mon Jun 29, 2020 11:38 am
afan wrote:
Fri Jun 26, 2020 11:18 pm
This question comes up frequently. It seems the only people who know the risks and costs of personal liability and therefore how much insurance one should have aren't talking.

Actuaries for insurance companies who write these policies know the answers. Unfortunately, no one who has identified themselves as such a person has commented on the umbrella threads I have seen. Lots of speculation from people who, apparently, are not experts.
Rumors about the risk of big losses. One off anecdotes. No data.

It is good that the insurance is cheap. No need to stress about it too much.

If any actuaries in this space want to chime in, bogleheads would love to know the answers.
Even without the actuary data, we have a very good idea of what the risk of liability is.

1) If you can buy $1 million in coverage for $200, then the odds of paying out the policy limits must be no more than 2 in 10,000. If the probability was more than 0.02%, the insurance company would be losing money.
2) 80-90% of personal umbrella claims are for motor vehicle accidents.
3) Data on large verdicts is publicly available.
viewtopic.php?t=131550
That is not quite enough to tell someone whether they should buy umbrella insurance or how much. The insurance industry knows that, in aggregate, the low premiums cover the costs. However, an individual needs to know not that the industry is profitable but that they have appropriate coverage.

The efficiency of the market suggests that the policies are not hugely profitable. If they were, then some companies could sell them much cheaper and get a larger market share.

Those are interesting observations but they don't tell one how high their risk is or whether their likely expense is several thousand dollars in legal fees or a crippling 8 figure judgement. An insurance company in this business would know how much lower is the risk for those without pools, for example. It will know the risk of suits and the size of awards in one state vs another. In one neighborhood vs another. By the networth and income, estimated, of customers. By the expense of their house or cars. It will know who has little exposure, in a defendant friendly state.

Individuals, unless they are actuaries in this field, apparently cannot get these data. So they extrapolate from anecdotes and rumor. "I know someone who paid for umbrella insurance for years and never had to use it" like saying "I know someone who has paid for term life insurance for 20 years and is still alive" Does either statement mean that they were wrong to buy the coverage? Or "My cousin told me about someone who was sued and their umbrella covered them" Does that mean they were better off than if they had saved 20 years of premiums and paid a lawyer out of pocket?

If it were much more expensive, it would be worth trying even harder to get real answers. As it is, a few hundred or a thousand extra dollars takes care of most worries.

At least until an actual expert comes along and contributes some data.

oldfort
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Re: How much umbrella insurance?

Post by oldfort » Mon Jun 29, 2020 6:55 pm

afan wrote:
Mon Jun 29, 2020 6:29 pm
oldfort wrote:
Mon Jun 29, 2020 11:38 am
afan wrote:
Fri Jun 26, 2020 11:18 pm
This question comes up frequently. It seems the only people who know the risks and costs of personal liability and therefore how much insurance one should have aren't talking.

Actuaries for insurance companies who write these policies know the answers. Unfortunately, no one who has identified themselves as such a person has commented on the umbrella threads I have seen. Lots of speculation from people who, apparently, are not experts.
Rumors about the risk of big losses. One off anecdotes. No data.

It is good that the insurance is cheap. No need to stress about it too much.

If any actuaries in this space want to chime in, bogleheads would love to know the answers.
Even without the actuary data, we have a very good idea of what the risk of liability is.

1) If you can buy $1 million in coverage for $200, then the odds of paying out the policy limits must be no more than 2 in 10,000. If the probability was more than 0.02%, the insurance company would be losing money.
2) 80-90% of personal umbrella claims are for motor vehicle accidents.
3) Data on large verdicts is publicly available.
viewtopic.php?t=131550
That is not quite enough to tell someone whether they should buy umbrella insurance or how much. The insurance industry knows that, in aggregate, the low premiums cover the costs. However, an individual needs to know not that the industry is profitable but that they have appropriate coverage.

The efficiency of the market suggests that the policies are not hugely profitable. If they were, then some companies could sell them much cheaper and get a larger market share.

Those are interesting observations but they don't tell one how high their risk is or whether their likely expense is several thousand dollars in legal fees or a crippling 8 figure judgement. An insurance company in this business would know how much lower is the risk for those without pools, for example. It will know the risk of suits and the size of awards in one state vs another. In one neighborhood vs another. By the networth and income, estimated, of customers. By the expense of their house or cars. It will know who has little exposure, in a defendant friendly state.

Individuals, unless they are actuaries in this field, apparently cannot get these data. So they extrapolate from anecdotes and rumor. "I know someone who paid for umbrella insurance for years and never had to use it" like saying "I know someone who has paid for term life insurance for 20 years and is still alive" Does either statement mean that they were wrong to buy the coverage? Or "My cousin told me about someone who was sued and their umbrella covered them" Does that mean they were better off than if they had saved 20 years of premiums and paid a lawyer out of pocket?

If it were much more expensive, it would be worth trying even harder to get real answers. As it is, a few hundred or a thousand extra dollars takes care of most worries.

At least until an actual expert comes along and contributes some data.
1. Did you read the linked thread? It is not based on anecdotes or rumor. It is based on every motor vehicle lawsuit verdict in the state of California for one year. I think you vastly overestimate what the actuaries know. Most insurance companies don't sell enough umbrella policies or have a large enough claims history to be able to do the type of fine grained analysis you want: liability risk for one neighborhood vs another. My insurance company doesn't know my net worth or income. If I ever did file an umbrella claim, their actuaries wouldn't be able to stratify risk based on income and net worth. Actuaries don't take your income or net worth into account when pricing your umbrella policy risk. It's not relevant to their models.
2. We can't know exactly how profitable insurance companies are, but we can still create an upper bound. If your premium for your umbrella policy implies an upper bound on the insurance company's estimation of your risk as 0.01% and CDC data for your age group shows mortality of 0.4% for your age group, then you know to a first order approximation you're 40x more likely to die than use your umbrella policy in the next year.
3. Unless your homeowner's insurance policy is complete junk, it or your auto policy would be primary on almost any risk the umbrella covers.

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willthrill81
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Re: How much umbrella insurance?

Post by willthrill81 » Mon Jun 29, 2020 9:01 pm

oldfort wrote:
Mon Jun 29, 2020 6:55 pm
afan wrote:
Mon Jun 29, 2020 6:29 pm
oldfort wrote:
Mon Jun 29, 2020 11:38 am
afan wrote:
Fri Jun 26, 2020 11:18 pm
This question comes up frequently. It seems the only people who know the risks and costs of personal liability and therefore how much insurance one should have aren't talking.

Actuaries for insurance companies who write these policies know the answers. Unfortunately, no one who has identified themselves as such a person has commented on the umbrella threads I have seen. Lots of speculation from people who, apparently, are not experts.
Rumors about the risk of big losses. One off anecdotes. No data.

It is good that the insurance is cheap. No need to stress about it too much.

If any actuaries in this space want to chime in, bogleheads would love to know the answers.
Even without the actuary data, we have a very good idea of what the risk of liability is.

1) If you can buy $1 million in coverage for $200, then the odds of paying out the policy limits must be no more than 2 in 10,000. If the probability was more than 0.02%, the insurance company would be losing money.
2) 80-90% of personal umbrella claims are for motor vehicle accidents.
3) Data on large verdicts is publicly available.
viewtopic.php?t=131550
That is not quite enough to tell someone whether they should buy umbrella insurance or how much. The insurance industry knows that, in aggregate, the low premiums cover the costs. However, an individual needs to know not that the industry is profitable but that they have appropriate coverage.

The efficiency of the market suggests that the policies are not hugely profitable. If they were, then some companies could sell them much cheaper and get a larger market share.

Those are interesting observations but they don't tell one how high their risk is or whether their likely expense is several thousand dollars in legal fees or a crippling 8 figure judgement. An insurance company in this business would know how much lower is the risk for those without pools, for example. It will know the risk of suits and the size of awards in one state vs another. In one neighborhood vs another. By the networth and income, estimated, of customers. By the expense of their house or cars. It will know who has little exposure, in a defendant friendly state.

Individuals, unless they are actuaries in this field, apparently cannot get these data. So they extrapolate from anecdotes and rumor. "I know someone who paid for umbrella insurance for years and never had to use it" like saying "I know someone who has paid for term life insurance for 20 years and is still alive" Does either statement mean that they were wrong to buy the coverage? Or "My cousin told me about someone who was sued and their umbrella covered them" Does that mean they were better off than if they had saved 20 years of premiums and paid a lawyer out of pocket?

If it were much more expensive, it would be worth trying even harder to get real answers. As it is, a few hundred or a thousand extra dollars takes care of most worries.

At least until an actual expert comes along and contributes some data.
1. Did you read the linked thread? It is not based on anecdotes or rumor. It is based on every motor vehicle lawsuit verdict in the state of California for one year.
Yes, that was an enlightening thread.

It may not be worth much, but I can honestly say that the only cases of someone actually using their umbrella policy that I've heard of were from a single insurance company providing very brief anecdotes.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Lee_WSP
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Location: Arizona

Re: How much umbrella insurance?

Post by Lee_WSP » Mon Jun 29, 2020 11:35 pm

afan wrote:
Mon Jun 29, 2020 6:29 pm
oldfort wrote:
Mon Jun 29, 2020 11:38 am
afan wrote:
Fri Jun 26, 2020 11:18 pm
This question comes up frequently. It seems the only people who know the risks and costs of personal liability and therefore how much insurance one should have aren't talking.

Actuaries for insurance companies who write these policies know the answers. Unfortunately, no one who has identified themselves as such a person has commented on the umbrella threads I have seen. Lots of speculation from people who, apparently, are not experts.
Rumors about the risk of big losses. One off anecdotes. No data.

It is good that the insurance is cheap. No need to stress about it too much.

If any actuaries in this space want to chime in, bogleheads would love to know the answers.
Even without the actuary data, we have a very good idea of what the risk of liability is.

1) If you can buy $1 million in coverage for $200, then the odds of paying out the policy limits must be no more than 2 in 10,000. If the probability was more than 0.02%, the insurance company would be losing money.
2) 80-90% of personal umbrella claims are for motor vehicle accidents.
3) Data on large verdicts is publicly available.
viewtopic.php?t=131550
That is not quite enough to tell someone whether they should buy umbrella insurance or how much. The insurance industry knows that, in aggregate, the low premiums cover the costs. However, an individual needs to know not that the industry is profitable but that they have appropriate coverage.

The efficiency of the market suggests that the policies are not hugely profitable. If they were, then some companies could sell them much cheaper and get a larger market share.

Those are interesting observations but they don't tell one how high their risk is or whether their likely expense is several thousand dollars in legal fees or a crippling 8 figure judgement. An insurance company in this business would know how much lower is the risk for those without pools, for example. It will know the risk of suits and the size of awards in one state vs another. In one neighborhood vs another. By the networth and income, estimated, of customers. By the expense of their house or cars. It will know who has little exposure, in a defendant friendly state.

Individuals, unless they are actuaries in this field, apparently cannot get these data. So they extrapolate from anecdotes and rumor. "I know someone who paid for umbrella insurance for years and never had to use it" like saying "I know someone who has paid for term life insurance for 20 years and is still alive" Does either statement mean that they were wrong to buy the coverage? Or "My cousin told me about someone who was sued and their umbrella covered them" Does that mean they were better off than if they had saved 20 years of premiums and paid a lawyer out of pocket?

If it were much more expensive, it would be worth trying even harder to get real answers. As it is, a few hundred or a thousand extra dollars takes care of most worries.

At least until an actual expert comes along and contributes some data.
The thing is, umbrella insurance doesn't actually protect you. It compensates others for your negligent acts.

$500k is enough to make most claims disappear. $1 mil is enough to make nearly all claims disappear. $2 mil is going to buy off all but the most heinous acts.

benway
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Re: How much umbrella insurance?

Post by benway » Tue Jun 30, 2020 7:16 am

As mentioned previously, many states shield Roths, 401ks, and tIRAs from creditors. This influenced my decision on how much coverage I wanted.

michaeljc70
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Re: How much umbrella insurance?

Post by michaeljc70 » Tue Jun 30, 2020 7:28 am

Lee_WSP wrote:
Mon Jun 29, 2020 11:35 pm
afan wrote:
Mon Jun 29, 2020 6:29 pm
oldfort wrote:
Mon Jun 29, 2020 11:38 am
afan wrote:
Fri Jun 26, 2020 11:18 pm
This question comes up frequently. It seems the only people who know the risks and costs of personal liability and therefore how much insurance one should have aren't talking.

Actuaries for insurance companies who write these policies know the answers. Unfortunately, no one who has identified themselves as such a person has commented on the umbrella threads I have seen. Lots of speculation from people who, apparently, are not experts.
Rumors about the risk of big losses. One off anecdotes. No data.

It is good that the insurance is cheap. No need to stress about it too much.

If any actuaries in this space want to chime in, bogleheads would love to know the answers.
Even without the actuary data, we have a very good idea of what the risk of liability is.

1) If you can buy $1 million in coverage for $200, then the odds of paying out the policy limits must be no more than 2 in 10,000. If the probability was more than 0.02%, the insurance company would be losing money.
2) 80-90% of personal umbrella claims are for motor vehicle accidents.
3) Data on large verdicts is publicly available.
viewtopic.php?t=131550
That is not quite enough to tell someone whether they should buy umbrella insurance or how much. The insurance industry knows that, in aggregate, the low premiums cover the costs. However, an individual needs to know not that the industry is profitable but that they have appropriate coverage.

The efficiency of the market suggests that the policies are not hugely profitable. If they were, then some companies could sell them much cheaper and get a larger market share.

Those are interesting observations but they don't tell one how high their risk is or whether their likely expense is several thousand dollars in legal fees or a crippling 8 figure judgement. An insurance company in this business would know how much lower is the risk for those without pools, for example. It will know the risk of suits and the size of awards in one state vs another. In one neighborhood vs another. By the networth and income, estimated, of customers. By the expense of their house or cars. It will know who has little exposure, in a defendant friendly state.

Individuals, unless they are actuaries in this field, apparently cannot get these data. So they extrapolate from anecdotes and rumor. "I know someone who paid for umbrella insurance for years and never had to use it" like saying "I know someone who has paid for term life insurance for 20 years and is still alive" Does either statement mean that they were wrong to buy the coverage? Or "My cousin told me about someone who was sued and their umbrella covered them" Does that mean they were better off than if they had saved 20 years of premiums and paid a lawyer out of pocket?

If it were much more expensive, it would be worth trying even harder to get real answers. As it is, a few hundred or a thousand extra dollars takes care of most worries.

At least until an actual expert comes along and contributes some data.
The thing is, umbrella insurance doesn't actually protect you. It compensates others for your negligent acts.

$500k is enough to make most claims disappear. $1 mil is enough to make nearly all claims disappear. $2 mil is going to buy off all but the most heinous acts.
You think you have to be negligent to be sued and lose? You don't.

afan
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Re: How much umbrella insurance?

Post by afan » Tue Jun 30, 2020 7:59 am

Looking at how much of your assets are at risk is an important consideration. Similar to judgement proof individuals not needing any coverage at all.

Depending on the nature of the retirement assets and your state, at least some are protected while in your account. If you take out money to live on, then that money becomes available to creditors, even if it had been protected before you took it out.

If you are many years from retirement, then this does not matter- no one is going to wait decades to get their hands on the money.

For those closer to retirement, remember that it can take years for a case to make its way through the legal system, the prospect of needing retirement money to live on may not be so remote by the time the case is resolved.

For those retired, even if nowhere near 72, they have to live on something. If they lose a case for more than their unprotected assets then their retirement assets are the next available source of income.

They could declare bankruptcy at that point. The protections available for retirement assets vary between federal and state bankruptcy laws but going bankrupt is hardly a desirable outcome and would be expensive. It could easily be more expensive than a lifetime of umbrella premiums.

The results of judgements in one state do not tell us anything about settlements or attorney costs. It has been asserted-again no data- that the vast majority of claims are settled without a trial.

Insurance companies write lots of homeowners and auto policies, so they see the lawsuits and resolution even if they have not issued umbrella policies on the people who were sued. If you know of some other entity that would have better data than the insurance companies then it would be fascinating to look there.

A company that writes homeowners and auto will have a ton of data. If it writes umbrella as well it may have a bit more- including those cases that would not have been covered under home and auto. If the company writes umbrella as well as home and auto then it knows what proportion of its suits, costs and settlements or judgements come from umbrella versus underlying coverage.

The companies need all of this information to know how much risk they are taking and how much to charge for the policies they write.

Unfortunately for us, the companies do not report this to the public.

The companies do not know your networth directly, but they know enough about your house, neighborhood and cars to make pretty good estimates of their value. That takes them to a guess of networth that would work at a population level, which all they need to price insurance. They know they will get it wrong on some individuals. As long as they get it close enough to correct across all the policies they write, then individual errors do not matter.

I know I don't know any of the above data for my insurance company. I am sure than my company knows all of those data for the policies it writes. I am sure that every other company that writes home, auto with or without umbrella knows these data.

I agree that the low price of umbrella coverage suggests low overall risk. But one could say the same thing about selling life insurance to a young healthy person. It will be cheap, but that does not mean it would be foolish for any young person to buy a policy.
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?

Post by afan » Tue Jun 30, 2020 8:01 am

michaeljc70 wrote:
Tue Jun 30, 2020 7:28 am


You think you have to be negligent to be sued and lose? You don't.
You certainly don't have to be negligent to be sued and win or have the case dismissed. You would still be out the costs of defending yourself.
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

oldfort
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Re: How much umbrella insurance?

Post by oldfort » Tue Jun 30, 2020 11:11 am

afan wrote:
Tue Jun 30, 2020 7:59 am
The companies do not know your networth directly, but they know enough about your house, neighborhood and cars to make pretty good estimates of their value. That takes them to a guess of networth that would work at a population level, which all they need to price insurance. They know they will get it wrong on some individuals. As long as they get it close enough to correct across all the policies they write, then individual errors do not matter.
I don't know why you keep talking about net worth. Insurance actuaries couldn't care less about what their customer's net worth is. Your net worth has almost zero relationship to your liability risk from the insurance company's standpoint. If the guy with the Ferrari gets charged more, it's because insurance actuaries think he's likely to drive it thirty miles over the speed limit, not because they can use it to reverse engineer his net worth. Someone with a new Mercedes S class and the latest safety features will get a lower umbrella premium than someone with a 15-year-old kia, even though the S-class driver on average has a higher net worth. Estimated net worth has zilch, nada to do with actuary pricing models.
Last edited by oldfort on Tue Jun 30, 2020 11:26 am, edited 2 times in total.

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Re: How much umbrella insurance?

Post by oldfort » Tue Jun 30, 2020 11:14 am

michaeljc70 wrote:
Tue Jun 30, 2020 7:28 am

You think you have to be negligent to be sued and lose? You don't.
If you lost, then you were negligent in the eyes of the judge or jury.

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Re: How much umbrella insurance?

Post by afan » Tue Jun 30, 2020 11:24 am

That is to lose.
You don't have to be negligent to be sued and win.
But it still costs money to defend.
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Re: How much umbrella insurance?

Post by oldfort » Tue Jun 30, 2020 2:18 pm

afan wrote:
Tue Jun 30, 2020 11:24 am
That is to lose.
You don't have to be negligent to be sued and win.
But it still costs money to defend.
If your umbrella doesn't cover anything beyond your homeowner's, auto, and watercraft policies, then you are owed a defense by your insurance company with or without an umbrella. With a couple of exceptions, AIG and PURE, you have no choice in legal representation. If you want to choose which firm represents you, you either have to be willing to pay out of pocket for your defense or else go with one of the two or three HNW carriers which provide this option.

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Re: How much umbrella insurance?

Post by afan » Tue Jun 30, 2020 5:10 pm

I believe Chubb also has this option. But how many people who are not attorneys in this field themselves are going to know nearly as much as a big insurance company about which lawyers to hire?
Sounds good- "choose your own lawyer from our list of approved firms" or "hire a shadow attorney to look over their shoulder". Great. How do I know who to hire?
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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Re: How much umbrella insurance?

Post by oldfort » Tue Jun 30, 2020 8:59 pm

afan wrote:
Tue Jun 30, 2020 5:10 pm
I believe Chubb also has this option. But how many people who are not attorneys in this field themselves are going to know nearly as much as a big insurance company about which lawyers to hire?
Sounds good- "choose your own lawyer from our list of approved firms" or "hire a shadow attorney to look over their shoulder". Great. How do I know who to hire?
On another thread an attorney posted this:
The misinformation on this thread is legion. I have done plaintiff, defence, and in house work for insurance cos. The amount of insurance limits you buy almost certainly has no bearing with what kind of lawyer you are "buying" to defend a case.
In other words, don't assume a larger umbrella policy results in better legal representation. Don't assume having an umbrella policy results in a better legal defense than not having one at all, assuming the incident would be covered under your homeowner's, watercraft, or auto primary policies. I don't know how you decide who the best lawyer is to defend you, but if you want the best, whatever that means, you might have to pay your defense costs out of pocket.

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Re: How much umbrella insurance?

Post by talzara » Wed Jul 01, 2020 11:29 am

afan wrote:
Mon Jun 29, 2020 6:29 pm
If it were much more expensive, it would be worth trying even harder to get real answers. As it is, a few hundred or a thousand extra dollars takes care of most worries.
The same effect applies to the other side. Insurance companies do not think it's worth it to develop a sophisticated actuarial model for umbrella insurance.

The GEICO slogan is "15 minutes could save you 15% or more on car insurance." That's because 15% of a $2000 auto insurance premium is $300, which is worth switching companies for. But 15% of a $300 umbrella premium is only $45, and umbrella is usually bundled with auto, so you can't switch to save $45.
afan wrote:
Tue Jun 30, 2020 7:59 am
A company that writes homeowners and auto will have a ton of data. If it writes umbrella as well it may have a bit more- including those cases that would not have been covered under home and auto. If the company writes umbrella as well as home and auto then it knows what proportion of its suits, costs and settlements or judgements come from umbrella versus underlying coverage.

The companies need all of this information to know how much risk they are taking and how much to charge for the policies they write.
Umbrella insurance has very simple rates. I've seen rate manuals that were only four pages long. This is very different from auto insurance, where some rate and rule manuals are 1000 pages long.

85% of the umbrella risk is excess auto liability, so a lot of companies just use tiered rates: Preferred Plus, Preferred, Standard. They just look at what tier you're in for auto insurance, and they don't use any other rate factors. Some companies only have two tiers, because the risk pool is so small that it's not worth dividing it up into three tiers.

Some insurers look at ZIP code, but only to divide the state into high-risk and low-risk territories. It's not like auto insurance, where a state might be divided into 50 different territories.

Some insurers add on premiums for additional cars, pools, or power equipment. However, these are usually flat premiums. It's not worth the cost of developing a more sophisticated model, as they do for auto insurance.

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Re: How much umbrella insurance?

Post by talzara » Wed Jul 01, 2020 11:35 am

oldfort wrote:
Tue Jun 30, 2020 11:11 am
afan wrote:
Tue Jun 30, 2020 7:59 am
The companies do not know your networth directly, but they know enough about your house, neighborhood and cars to make pretty good estimates of their value. That takes them to a guess of networth that would work at a population level, which all they need to price insurance. They know they will get it wrong on some individuals. As long as they get it close enough to correct across all the policies they write, then individual errors do not matter.
I don't know why you keep talking about net worth. Insurance actuaries couldn't care less about what their customer's net worth is. Your net worth has almost zero relationship to your liability risk from the insurance company's standpoint. If the guy with the Ferrari gets charged more, it's because insurance actuaries think he's likely to drive it thirty miles over the speed limit, not because they can use it to reverse engineer his net worth.
Umbrella insurance is not priced based on net worth. Insurance companies do look at litigation magnets, like whether you are a celebrity, a professional sports player, or a C-level executive.

Net worth is occasionally used in underwriting. One Boglehead reported being turned down for high-limit umbrella insurance because net worth was lower than the umbrella limit. However, a different company probably would've accepted that customer.

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Re: How much umbrella insurance?

Post by oldfort » Wed Jul 01, 2020 1:39 pm

talzara wrote:
Wed Jul 01, 2020 11:35 am
oldfort wrote:
Tue Jun 30, 2020 11:11 am
afan wrote:
Tue Jun 30, 2020 7:59 am
The companies do not know your networth directly, but they know enough about your house, neighborhood and cars to make pretty good estimates of their value. That takes them to a guess of networth that would work at a population level, which all they need to price insurance. They know they will get it wrong on some individuals. As long as they get it close enough to correct across all the policies they write, then individual errors do not matter.
I don't know why you keep talking about net worth. Insurance actuaries couldn't care less about what their customer's net worth is. Your net worth has almost zero relationship to your liability risk from the insurance company's standpoint. If the guy with the Ferrari gets charged more, it's because insurance actuaries think he's likely to drive it thirty miles over the speed limit, not because they can use it to reverse engineer his net worth.
One Boglehead reported being turned down for high-limit umbrella insurance because net worth was lower than the umbrella limit. However, a different company probably would've accepted that customer.
This sounds odd. Do you remember which thread this was in?

bding
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Re: How much umbrella insurance?

Post by bding » Wed Jul 01, 2020 1:46 pm

The rule of thumb that I've been recommended to follow is an umbrella policy that closely matches your net worth.

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MP123
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Re: How much umbrella insurance?

Post by MP123 » Wed Jul 01, 2020 1:50 pm

oldfort wrote:
Wed Jul 01, 2020 1:39 pm
talzara wrote:
Wed Jul 01, 2020 11:35 am
oldfort wrote:
Tue Jun 30, 2020 11:11 am
afan wrote:
Tue Jun 30, 2020 7:59 am
The companies do not know your networth directly, but they know enough about your house, neighborhood and cars to make pretty good estimates of their value. That takes them to a guess of networth that would work at a population level, which all they need to price insurance. They know they will get it wrong on some individuals. As long as they get it close enough to correct across all the policies they write, then individual errors do not matter.
I don't know why you keep talking about net worth. Insurance actuaries couldn't care less about what their customer's net worth is. Your net worth has almost zero relationship to your liability risk from the insurance company's standpoint. If the guy with the Ferrari gets charged more, it's because insurance actuaries think he's likely to drive it thirty miles over the speed limit, not because they can use it to reverse engineer his net worth.
One Boglehead reported being turned down for high-limit umbrella insurance because net worth was lower than the umbrella limit. However, a different company probably would've accepted that customer.
This sounds odd. Do you remember which thread this was in?
I shopped my policies a year ago and found several companies that required underwriting approval for umbrellas over $3M. They needed to see documentation of assets. Other companies were fine with even higher amounts and no underwriting needed.

It probably varies by company and state.

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Re: How much umbrella insurance?

Post by Mordoch » Wed Jul 01, 2020 1:58 pm

MP123 wrote:
Wed Jul 01, 2020 1:50 pm
I shopped my policies a year ago and found several companies that required underwriting approval for umbrellas over $3M. They needed to see documentation of assets. Other companies were fine with even higher amounts and no underwriting needed.

It probably varies by company and state.
My suspicion is some insurance companies are worried about some sort of fraud occurring or some sort of unexpected exceptional degree of risk in cases where someone is pursuing that amount of umbrella insurance, why other companies have decided it is not worth worrying about. (Since the number of people current buying umbrella insurance without corresponding assets past a certain level is probably fairly low, that probably makes it easier for some companies to decide they simply won't cover this market.)

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Re: How much umbrella insurance?

Post by MP123 » Wed Jul 01, 2020 2:06 pm

Mordoch wrote:
Wed Jul 01, 2020 1:58 pm
MP123 wrote:
Wed Jul 01, 2020 1:50 pm
I shopped my policies a year ago and found several companies that required underwriting approval for umbrellas over $3M. They needed to see documentation of assets. Other companies were fine with even higher amounts and no underwriting needed.

It probably varies by company and state.
My suspicion is some insurance companies are worried about some sort of fraud occurring or some sort of unexpected exceptional degree of risk in cases where someone is pursuing that amount of umbrella insurance, why other companies have decided it is not worth worrying about. (Since the number of people current buying umbrella insurance without corresponding assets past a certain level is probably fairly low, that probably makes it easier for some companies to decide they simply won't cover this market.)
Yes, that was my feeling as well. Perhaps someone with no assets buying a $15M umbrella might be up to no good? It seems fraud might be a possibility at least.

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Re: How much umbrella insurance?

Post by afan » Wed Jul 01, 2020 2:37 pm

talzara wrote:
Wed Jul 01, 2020 11:29 am

Umbrella insurance has very simple rates. I've seen rate manuals that were only four pages long. This is very different from auto insurance, where some rate and rule manuals are 1000 pages long.

85% of the umbrella risk is excess auto liability, so a lot of companies just use tiered rates: Preferred Plus, Preferred, Standard. They just look at what tier you're in for auto insurance, and they don't use any other rate factors. Some companies only have two tiers, because the risk pool is so small that it's not worth dividing it up into three tiers.

Some insurers look at ZIP code, but only to divide the state into high-risk and low-risk territories. It's not like auto insurance, where a state might be divided into 50 different territories.

Some insurers add on premiums for additional cars, pools, or power equipment. However, these are usually flat premiums. It's not worth the cost of developing a more sophisticated model, as they do for auto insurance.
So to the question of this thread, "How much umbrella insurance should someone buy?"
Are there meaningful differences in coverage for the policies from different companies?
Do the High Net Worth companies offer anything worth having for umbrella coverage that the standard companies do not?
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

TLB
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Re: How much umbrella insurance?

Post by TLB » Wed Jul 01, 2020 4:05 pm

I have 10m through Cincinnati Insurance Company, bought it a few years ago after selling my business. I pay $2,580.00 per year.

oldfort
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Re: How much umbrella insurance?

Post by oldfort » Wed Jul 01, 2020 4:50 pm

afan wrote:
Wed Jul 01, 2020 2:37 pm
talzara wrote:
Wed Jul 01, 2020 11:29 am

Umbrella insurance has very simple rates. I've seen rate manuals that were only four pages long. This is very different from auto insurance, where some rate and rule manuals are 1000 pages long.

85% of the umbrella risk is excess auto liability, so a lot of companies just use tiered rates: Preferred Plus, Preferred, Standard. They just look at what tier you're in for auto insurance, and they don't use any other rate factors. Some companies only have two tiers, because the risk pool is so small that it's not worth dividing it up into three tiers.

Some insurers look at ZIP code, but only to divide the state into high-risk and low-risk territories. It's not like auto insurance, where a state might be divided into 50 different territories.

Some insurers add on premiums for additional cars, pools, or power equipment. However, these are usually flat premiums. It's not worth the cost of developing a more sophisticated model, as they do for auto insurance.
So to the question of this thread, "How much umbrella insurance should someone buy?"
Are there meaningful differences in coverage for the policies from different companies?
Do the High Net Worth companies offer anything worth having for umbrella coverage that the standard companies do not?
The most obvious differences would be higher limits and some choice of legal representation. Chubb and AIG offer up to $100 million umbrella policies with up to $10 million in UM/UIM coverage. Lower end companies may exclude aircraft and some types of watercraft. Do you own a private jet or a yacht? The HNW companies may have a greater willingness to insure high risk individuals: politicians, celebrities, professional athletes, and Fortune 500 CEOs.

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Re: How much umbrella insurance?

Post by oldfort » Wed Jul 01, 2020 7:38 pm

afan wrote:
Tue Jun 30, 2020 7:59 am
But one could say the same thing about selling life insurance to a young healthy person. It will be cheap, but that does not mean it would be foolish for any young person to buy a policy.
Term life insurance isn't analogous to umbrella insurance because it's sold for long terms. Part of the reason, maybe the largest reason for a young, healthy person, to buy a 20-30 year term life insurance policy isn't to cover the risk of dying in the next 12 months, but to guarantee the ability to buy life insurance at reasonable rates in the future. Auto/home/umbrella isn't like this. If you have a large liability claim, your rates will go up dramatically or your policy won't be renewed the following year.

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Re: How much umbrella insurance?

Post by Lee_WSP » Wed Jul 01, 2020 7:42 pm

afan wrote:
Wed Jul 01, 2020 2:37 pm
talzara wrote:
Wed Jul 01, 2020 11:29 am

Umbrella insurance has very simple rates. I've seen rate manuals that were only four pages long. This is very different from auto insurance, where some rate and rule manuals are 1000 pages long.

85% of the umbrella risk is excess auto liability, so a lot of companies just use tiered rates: Preferred Plus, Preferred, Standard. They just look at what tier you're in for auto insurance, and they don't use any other rate factors. Some companies only have two tiers, because the risk pool is so small that it's not worth dividing it up into three tiers.

Some insurers look at ZIP code, but only to divide the state into high-risk and low-risk territories. It's not like auto insurance, where a state might be divided into 50 different territories.

Some insurers add on premiums for additional cars, pools, or power equipment. However, these are usually flat premiums. It's not worth the cost of developing a more sophisticated model, as they do for auto insurance.
So to the question of this thread, "How much umbrella insurance should someone buy?"
Are there meaningful differences in coverage for the policies from different companies?
Do the High Net Worth companies offer anything worth having for umbrella coverage that the standard companies do not?
How much of a litigation target do you really think you are? How much are you willing to pay for a heinous acts insurance? If such a heinous act occurred, do you really think they wouldn't settle for your current limits?

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Re: How much umbrella insurance?

Post by ncbill » Thu Jul 02, 2020 7:28 am

oldfort wrote:
Wed Jul 01, 2020 4:50 pm
afan wrote:
Wed Jul 01, 2020 2:37 pm
talzara wrote:
Wed Jul 01, 2020 11:29 am

Umbrella insurance has very simple rates. I've seen rate manuals that were only four pages long. This is very different from auto insurance, where some rate and rule manuals are 1000 pages long.

85% of the umbrella risk is excess auto liability, so a lot of companies just use tiered rates: Preferred Plus, Preferred, Standard. They just look at what tier you're in for auto insurance, and they don't use any other rate factors. Some companies only have two tiers, because the risk pool is so small that it's not worth dividing it up into three tiers.

Some insurers look at ZIP code, but only to divide the state into high-risk and low-risk territories. It's not like auto insurance, where a state might be divided into 50 different territories.

Some insurers add on premiums for additional cars, pools, or power equipment. However, these are usually flat premiums. It's not worth the cost of developing a more sophisticated model, as they do for auto insurance.
So to the question of this thread, "How much umbrella insurance should someone buy?"
Are there meaningful differences in coverage for the policies from different companies?
Do the High Net Worth companies offer anything worth having for umbrella coverage that the standard companies do not?
The most obvious differences would be higher limits and some choice of legal representation. Chubb and AIG offer up to $100 million umbrella policies with up to $10 million in UM/UIM coverage. Lower end companies may exclude aircraft and some types of watercraft. Do you own a private jet or a yacht? The HNW companies may have a greater willingness to insure high risk individuals: politicians, celebrities, professional athletes, and Fortune 500 CEOs.
Is there really an umbrella that covers aircraft operation?

Since mine doesn't I pay another thousand bucks annually for million dollars liability coverage plus $100k airframe coverage for a kid who holds a private pilot's license and all they're doing is renting single engine for occasional VFR pleasure flights.

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Re: How much umbrella insurance?

Post by michaeljc70 » Thu Jul 02, 2020 7:59 am

oldfort wrote:
Tue Jun 30, 2020 11:14 am
michaeljc70 wrote:
Tue Jun 30, 2020 7:28 am

You think you have to be negligent to be sued and lose? You don't.
If you lost, then you were negligent in the eyes of the judge or jury.
You could have perfect stairs in your home. Someone could fall. You don't think they will get a penny out of you? Have you seen the headlines lately? Roundup....baby powder....billions paid on faux science for products that have been around for decades. Juries aren't always very smart. They see someone injured and feel sympathetic.

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Re: How much umbrella insurance?

Post by oldfort » Thu Jul 02, 2020 8:58 am

not applicable

talzara
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Re: How much umbrella insurance?

Post by talzara » Thu Jul 02, 2020 10:56 am

afan wrote:
Wed Jul 01, 2020 2:37 pm
So to the question of this thread, "How much umbrella insurance should someone buy?"
Are there meaningful differences in coverage for the policies from different companies?
Do the High Net Worth companies offer anything worth having for umbrella coverage that the standard companies do not?
You should buy enough umbrella insurance to sleep at night. The amount will depend on your risk and your risk aversion. People who are risk-averse should carry more umbrella insurance. People who are risk-neutral should carry less or even no umbrella insurance.

Umbrella insurance is not a standardized product. There are many differences between the policies. Take a look at Jack Hungelmann's coverage table: https://www.irmi.com/docs/default-sourc ... -chart.pdf

There are also more fundamental differences. Some umbrellas aren't actually umbrellas, because they're just excess liability policies that have no dropdown coverage. Some umbrellas pay for worldwide legal expenses, and others only pay legal expenses in the US.

If you're worried about something, then you should read your policy to see if you're covered.

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Re: How much umbrella insurance?

Post by talzara » Thu Jul 02, 2020 11:05 am

ncbill wrote:
Thu Jul 02, 2020 7:28 am
Is there really an umbrella that covers aircraft operation?

Since mine doesn't I pay another thousand bucks annually for million dollars liability coverage plus $100k airframe coverage for a kid who holds a private pilot's license and all they're doing is renting single engine for occasional VFR pleasure flights.
Jack Hungelmann's coverage table from 2010 is still the best summary of what is covered by different umbrella policies: https://www.irmi.com/docs/default-sourc ... -chart.pdf

The Auto Owners umbrella policy provides aircraft liability coverage, or at least it did 10 years ago. However, the policy required you to carry $1 million of underlying aircraft liability insurance. You will not save any money, since your policy limit is only $1 million.

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Re: How much umbrella insurance?

Post by afan » Thu Jul 02, 2020 3:07 pm

talzara wrote:
Thu Jul 02, 2020 10:56 am

You should buy enough umbrella insurance to sleep at night. The amount will depend on your risk and your risk aversion. People who are risk-averse should carry more umbrella insurance. People who are risk-neutral should carry less or even no umbrella insurance.
Yes, people with higher exposure and who are more risk averse should have bigger policies. The challenge is translating that into a dollar figure.

That is perhaps why net worth is so popular. It provides a dollar figure.

It also addresses an implicit assumption that the higher the net worth, perhaps, the higher the exposure. Wealthier people are more likely to have pools or boats. Or pools on their boats.

This only works so far. An equally wealthy person who did not have a collection of expensive and dangerous toys might be quite safe with less coverage.

That still does not tell either of them how much protection they need.
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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Re: How much umbrella insurance?

Post by oldfort » Thu Jul 02, 2020 3:51 pm

afan wrote:
Thu Jul 02, 2020 3:07 pm
talzara wrote:
Thu Jul 02, 2020 10:56 am

You should buy enough umbrella insurance to sleep at night. The amount will depend on your risk and your risk aversion. People who are risk-averse should carry more umbrella insurance. People who are risk-neutral should carry less or even no umbrella insurance.
Yes, people with higher exposure and who are more risk averse should have bigger policies. The challenge is translating that into a dollar figure.

That is perhaps why net worth is so popular. It provides a dollar figure.

It also addresses an implicit assumption that the higher the net worth, perhaps, the higher the exposure. Wealthier people are more likely to have pools or boats.
This correlation isn't quite zero, but it has to be close. You can get an above ground pool for $5k. You can get a jet ski for $10k. There's people who have a pool and a boat with a negative net worth. There's people who own neither with a net worth in the 8 figures.

oldfort
Posts: 1048
Joined: Mon Mar 02, 2020 8:45 pm

Re: How much umbrella insurance?

Post by oldfort » Thu Jul 02, 2020 4:53 pm

afan wrote:
Tue Jun 30, 2020 7:59 am
Looking at how much of your assets are at risk is an important consideration. Similar to judgement proof individuals not needing any coverage at all.

Depending on the nature of the retirement assets and your state, at least some are protected while in your account. If you take out money to live on, then that money becomes available to creditors, even if it had been protected before you took it out.

If you are many years from retirement, then this does not matter- no one is going to wait decades to get their hands on the money.

For those closer to retirement, remember that it can take years for a case to make its way through the legal system, the prospect of needing retirement money to live on may not be so remote by the time the case is resolved.

For those retired, even if nowhere near 72, they have to live on something. If they lose a case for more than their unprotected assets then their retirement assets are the next available source of income.

They could declare bankruptcy at that point. The protections available for retirement assets vary between federal and state bankruptcy laws but going bankrupt is hardly a desirable outcome and would be expensive. It could easily be more expensive than a lifetime of umbrella premiums.

The results of judgements in one state do not tell us anything about settlements or attorney costs. It has been asserted-again no data- that the vast majority of claims are settled without a trial.

Insurance companies write lots of homeowners and auto policies, so they see the lawsuits and resolution even if they have not issued umbrella policies on the people who were sued. If you know of some other entity that would have better data than the insurance companies then it would be fascinating to look there.

A company that writes homeowners and auto will have a ton of data. If it writes umbrella as well it may have a bit more- including those cases that would not have been covered under home and auto. If the company writes umbrella as well as home and auto then it knows what proportion of its suits, costs and settlements or judgements come from umbrella versus underlying coverage.

The companies need all of this information to know how much risk they are taking and how much to charge for the policies they write.

Unfortunately for us, the companies do not report this to the public.

The companies do not know your networth directly, but they know enough about your house, neighborhood and cars to make pretty good estimates of their value. That takes them to a guess of networth that would work at a population level, which all they need to price insurance. They know they will get it wrong on some individuals. As long as they get it close enough to correct across all the policies they write, then individual errors do not matter.

I know I don't know any of the above data for my insurance company. I am sure than my company knows all of those data for the policies it writes. I am sure that every other company that writes home, auto with or without umbrella knows these data.

I agree that the low price of umbrella coverage suggests low overall risk. But one could say the same thing about selling life insurance to a young healthy person. It will be cheap, but that does not mean it would be foolish for any young person to buy a policy.
Umbrella pricing can much simpler than you think. See this link from RLI on how they calculate umbrella premiums. You fall into one of five risk classes: preferred, standard, standard with youthful driver, standard II, and standard II with youthful driver. To get the preferred tier, you can't have any drivers under 22, over 70, any moving violations or at fault accidents in the past three years, or any DUI/DWIs within the past five years. The state of California is divided into three geographic tiers, based on the leading three digits of a zip code. The combination of your risk class, geographic tier, and primary limits determines your premium. That's it, none of this nonsense about neighborhood level pricing and estimating net worth from your car and house.

https://andersonmurison.com/downloads/am/6019.pdf

afan
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Joined: Sun Jul 25, 2010 4:01 pm

Re: How much umbrella insurance?

Post by afan » Thu Jul 02, 2020 5:52 pm

Interesting table. Five classes, multple zip codes (which can be a good proxy for housing price, which is a proxy for net worth). But it is not that simple. The class is assigned based on the answers to at least 10 questions, with no indication here what those questions may be. The number of antique or classic cars is another factor. The table gives a price but at least this document does not address whether there are different or additional charges for other coverage beyond those in the base policy.
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

oldfort
Posts: 1048
Joined: Mon Mar 02, 2020 8:45 pm

Re: How much umbrella insurance?

Post by oldfort » Thu Jul 02, 2020 6:07 pm

afan wrote:
Thu Jul 02, 2020 5:52 pm
Interesting table. Five classes, multple zip codes (which can be a good proxy for housing price, which is a proxy for net worth). But it is not that simple. The class is assigned based on the answers to at least 10 questions, with no indication here what those questions may be. The number of antique or classic cars is another factor. The table gives a price but at least this document does not address whether there are different or additional charges for other coverage beyond those in the base policy.
California has roughly ~2600 zip codes. Let's assume each geographic group has approximately the same number of zip codes. Knowing someone lives in a group of 800-900 zip codes is an incredibly poor proxy for housing value and even weaker proxy for net worth. It's not as bad as throwing a dart at a dartboard blindfolded, but it's close. There are no additional surcharges, other than antique and collectible vehicles, unless you fall into the PUP special category. If you fall into this high risk category, they won't issue coverage for more than $1 million if at all. Here are the list of questions if you want to take a look. Pricing varies by state, but the list of questions to determine risk class is the same nationwide. Some states do have a simplified, four tier structure where the standard and preferred risk classes are combined.

https://www.rlicorp.com/sites/default/f ... pup/OH.pdf

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