Umbrella Insurance - Worst Case

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NewMoneyMustBeSmart
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Re: Umbrella Insurance - Worst Case

Post by NewMoneyMustBeSmart »

TrollToll wrote: Mon Aug 24, 2020 9:55 am I've just started thinking about umbrella insurance and I'm wondering if I should get it.
...
Should I get umbrella insurance?
If I were you I would get it.
-- | Few are those who see with their own eyes and feel with their own hearts - Einstein
afan
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Re: Umbrella Insurance - Worst Case

Post by afan »

oldfort wrote: Fri Aug 28, 2020 4:33 pm
deltaneutral83 wrote: Fri Aug 28, 2020 4:25 pm
oldfort wrote: Fri Aug 28, 2020 4:04 pm What? This isn't health insurance, where you get a pre-existing condition and are uninsurable for life. Well, health insurance doesn't work that way either anymore.
Get a few speeding tickets and see what happens to your ability to get an Umbrella at all or even for a decent premium, hint, it doesn't help.
Get a few speeding tickets, depending on how high over you were going, and your auto/umbrella insurance company will raise your rates or drop you. Auto/umbrella insurance isn't like term life insurance. Buying it now doesn't give you the option to buy it years in the future at a fixed rate.
These policies renew every year and the insurance company is under no obligation to keep you as a customer. If they don't like your risk profile they will drop you. Having a policy with them now does nothing to ensure you will have a policy later.

It is not even like auto insurance where many companies will not take you if you cannot show that you have been insured already. There is no stigma to not having an umbrella 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
talzara
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Re: Umbrella Insurance - Worst Case

Post by talzara »

deltaneutral83 wrote: Fri Aug 28, 2020 12:41 pm I never said it was in a vacuum , I inferred that in the context of protecting a half a million dollar net worth (and growing) I wouldn't waste time thinking about it.
Who said that the OP should not protect $500k of net worth?

The OP does not need to buy umbrella to get that protection. The person you're replying to has already recommended a much cheaper policy:
Lee_WSP wrote: Mon Aug 24, 2020 2:33 pm OP should, however, buy a 1 million renter's or homeowner's policy.
85% of the umbrella risk is excess auto liability, so umbrella is a waste of money if you don't drive. If you have no risk, then you shouldn't buy insurance to cover that risk.

Increasing the liability limit on a renters insurance policy will provide adequate protection to the OP, without having to buy excess auto insurance that is not needed. Some insurers will not cover $1 million of liability on a renters insurance policy, but others will. Renters insurance premiums are so low that it's easy to switch companies.
neilpilot
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Re: Umbrella Insurance - Worst Case

Post by neilpilot »

Bobby206 wrote: Fri Aug 28, 2020 3:47 pm
Swimmer wrote: Fri Aug 28, 2020 3:28 pm
Bobby206 wrote: Fri Aug 28, 2020 3:08 pm I'd get a mil. Premium will be super cheap I imagine. It's catastrophic planning and for a couple hundred bucks a year I would.

Super cheap? Not for us. We’re paying over $500 for $1M through Allstate. State Farm was comparable. Florida residents in our 70s. Wondering whether it’s worth it.
Right. The cost is based on your underlying situation I believe. I pay a few thousand a year because I have many rental properties. For the OP, in their 20's, living a simple life, I imagine the cost would be very cheap which is why I suggested a couple hundred bucks.

For you, even at $500 that sounds like super cheap insurance if you get in a bad accident and cause major injury. That's just my opinion but I would have a couple mil if I were 70 and still driving.
Maybe Swimmer exhibits some undisclosed risk factor? We have 2 cars and are 70, and our umbrella is $272, for $2M. So I don't consider $500 for half our policy limit as "super cheap".
oldfort
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Re: Umbrella Insurance - Worst Case

Post by oldfort »

neilpilot wrote: Fri Aug 28, 2020 7:16 pm
Bobby206 wrote: Fri Aug 28, 2020 3:47 pm
Swimmer wrote: Fri Aug 28, 2020 3:28 pm
Bobby206 wrote: Fri Aug 28, 2020 3:08 pm I'd get a mil. Premium will be super cheap I imagine. It's catastrophic planning and for a couple hundred bucks a year I would.

Super cheap? Not for us. We’re paying over $500 for $1M through Allstate. State Farm was comparable. Florida residents in our 70s. Wondering whether it’s worth it.
Right. The cost is based on your underlying situation I believe. I pay a few thousand a year because I have many rental properties. For the OP, in their 20's, living a simple life, I imagine the cost would be very cheap which is why I suggested a couple hundred bucks.

For you, even at $500 that sounds like super cheap insurance if you get in a bad accident and cause major injury. That's just my opinion but I would have a couple mil if I were 70 and still driving.
Maybe Swimmer exhibits some undisclosed risk factor? We have 2 cars and are 70, and our umbrella is $272, for $2M. So I don't consider $500 for half our policy limit as "super cheap".
I found some pricing information for RLI. How much you pay is determined a lot by where you live. Pricing varies a lot between states and within states. Some groups of zip codes are higher risk than other groups of zip codes.
Last edited by oldfort on Fri Aug 28, 2020 8:07 pm, edited 1 time in total.
Bobby206
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Re: Umbrella Insurance - Worst Case

Post by Bobby206 »

neilpilot wrote: Fri Aug 28, 2020 7:16 pm
Bobby206 wrote: Fri Aug 28, 2020 3:47 pm
Swimmer wrote: Fri Aug 28, 2020 3:28 pm
Bobby206 wrote: Fri Aug 28, 2020 3:08 pm I'd get a mil. Premium will be super cheap I imagine. It's catastrophic planning and for a couple hundred bucks a year I would.

Super cheap? Not for us. We’re paying over $500 for $1M through Allstate. State Farm was comparable. Florida residents in our 70s. Wondering whether it’s worth it.
Right. The cost is based on your underlying situation I believe. I pay a few thousand a year because I have many rental properties. For the OP, in their 20's, living a simple life, I imagine the cost would be very cheap which is why I suggested a couple hundred bucks.

For you, even at $500 that sounds like super cheap insurance if you get in a bad accident and cause major injury. That's just my opinion but I would have a couple mil if I were 70 and still driving.
Maybe Swimmer exhibits some undisclosed risk factor? We have 2 cars and are 70, and our umbrella is $272, for $2M. So I don't consider $500 for half our policy limit as "super cheap".
$272 is super super super cheap!
Lee_WSP
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Re: Umbrella Insurance - Worst Case

Post by Lee_WSP »

Cheapness is very relative. Inconsequential can be calculated based on net worth.
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tadamsmar
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Re: Umbrella Insurance - Worst Case

Post by tadamsmar »

TrollToll wrote: Mon Aug 24, 2020 9:55 am I've just started thinking about umbrella insurance and I'm wondering if I should get it.

About me:
Married, 27 & 25
$550,000 Net Worth (almost all in stock index funds, otherwise bank)
No debt
$160,000 Income
$120,000 Spouse Income
$90,000 Annual Spending (conservative guess based on past spending and recent move to HCOL city)
Renting home in HCOL city with no intention to buy
No car
No kids
Anticipating FI in 5-10 years. Spouse isn't interested in RE at this point, but I'd be interested in trying something different.

I've reviewed a number of umbrella insurance threads. They all seem to emphasize risk factors individuals have, but don't apply to me.

Examples:
-Car owner could be sued in accident.
-Teen driver has higher likelihood of accidents.
-Easy to tack on umbrella to car/home policy.

I feel like my situation is a bit different. The risk factors for being sued are mitigated by my situation. I can't injure someone in a car I don't own/drive. My apartment is tiny, so any guests would be rare. And any guest we do have would be close family/friends. We have no kids to worry about. I don't have a habit of slandering or libeling people. I also don't have a car/homeowner policy to add umbrella to (does renters insurance count?).

On the other hand, we do have a decent chunk of assets and umbrella insurance is cheap. And I've never heard a Boglehead recommend not getting umbrella insurance.

Should I get umbrella insurance?
One issue is that there are holes in your understanding of your liability. You list is not complete. I am guessing that is because your have never applied for umbrella insurance.

Not sure if you can get it without a car, but RLI seems to offer is standalone.

Anyway if you got the minimum ($1,000,000, which might cost $100/year) you would know more about liability. Heck, if you just applied for it you would know more about liability. If you had it you would probably be informed quickly if you did anything that increased your liability. RLI informed me when that happened, I guess their computers scan information the is available about what I do.
boglerdude
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Re: Umbrella Insurance - Worst Case

Post by boglerdude »

Thanks to talzara and oldfort for pushing back on the "anything can happen buy $20 million umbrella" crew

Look into the Caitlyn Jenner crash. Fatal multiple-vehicle collision, evidence of negligence (pics of driver using phone) and 100M net worth of defendant. Still settled for 1M policy limit
smitcat
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Re: Umbrella Insurance - Worst Case

Post by smitcat »

talzara wrote: Fri Aug 28, 2020 5:46 pm
deltaneutral83 wrote: Fri Aug 28, 2020 12:41 pm I never said it was in a vacuum , I inferred that in the context of protecting a half a million dollar net worth (and growing) I wouldn't waste time thinking about it.
Who said that the OP should not protect $500k of net worth?

The OP does not need to buy umbrella to get that protection. The person you're replying to has already recommended a much cheaper policy:
Lee_WSP wrote: Mon Aug 24, 2020 2:33 pm OP should, however, buy a 1 million renter's or homeowner's policy.
85% of the umbrella risk is excess auto liability, so umbrella is a waste of money if you don't drive. If you have no risk, then you shouldn't buy insurance to cover that risk.

Increasing the liability limit on a renters insurance policy will provide adequate protection to the OP, without having to buy excess auto insurance that is not needed. Some insurers will not cover $1 million of liability on a renters insurance policy, but others will. Renters insurance premiums are so low that it's easy to switch companies.
I know virtually nothing about renters incurance - will that insurance cover things like when you are traveling, if you rent a car and have a loss, if an accident occurs off the rented site , etc?
Swimmer
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Re: Umbrella Insurance - Worst Case

Post by Swimmer »

neilpilot wrote: Fri Aug 28, 2020 7:16 pm
Bobby206 wrote: Fri Aug 28, 2020 3:47 pm
Swimmer wrote: Fri Aug 28, 2020 3:28 pm
Bobby206 wrote: Fri Aug 28, 2020 3:08 pm I'd get a mil. Premium will be super cheap I imagine. It's catastrophic planning and for a couple hundred bucks a year I would.

Super cheap? Not for us. We’re paying over $500 for $1M through Allstate. State Farm was comparable. Florida residents in our 70s. Wondering whether it’s worth it.
Right. The cost is based on your underlying situation I believe. I pay a few thousand a year because I have many rental properties. For the OP, in their 20's, living a simple life, I imagine the cost would be very cheap which is why I suggested a couple hundred bucks.

For you, even at $500 that sounds like super cheap insurance if you get in a bad accident and cause major injury. That's just my opinion but I would have a couple mil if I were 70 and still driving.
Maybe Swimmer exhibits some undisclosed risk factor? We have 2 cars and are 70, and our umbrella is $272, for $2M. So I don't consider $500 for half our policy limit as "super cheap".

No, don’t believe so. I’m 70. DH is 76. No violations or accidents. One low-mileage vehicle, one golf cart, primary home and condo. I know the fact we live in Florida doesn’t help. Allstate and State Farm rates about the same. Should we insurance shop? Anyone in comparable situation?
Swimmer
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Re: Umbrella Insurance - Worst Case

Post by Swimmer »

boglerdude wrote: Fri Aug 28, 2020 11:42 pm Thanks to talzara and oldfort for pushing back on the "anything can happen buy $20 million umbrella" crew

Look into the Caitlyn Jenner crash. Fatal multiple-vehicle collision, evidence of negligence (pics of driver using phone) and 100M net worth of defendant. Still settled for 1M policy limit

Jenner is a celebrity. Different rules apply?
talzara
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Re: Umbrella Insurance - Worst Case

Post by talzara »

tadamsmar wrote: Fri Aug 28, 2020 8:16 pm One issue is that there are holes in your understanding of your liability. You list is not complete. I am guessing that is because your have never applied for umbrella insurance.
Jack Hungelmann's chart has the best summary of what else is covered by umbrella policies: https://www.irmi.com/docs/default-sourc ... f?sfvrsn=4

However, 85% of the umbrella risk is excess auto liability. Umbrella policies require you to carry auto insurance, and they give you no discount for not driving. If you don't drive, umbrella requires you to buy a lot of auto insurance that you don't need.
tadamsmar wrote: Fri Aug 28, 2020 8:16 pm Not sure if you can get it without a car, but RLI seems to offer is standalone.
RLI will not write an umbrella unless you carry auto insurance.

In the umbrella insurance industry, "standalone" means that the umbrella insurer isn't writing your underlying policies. It's "standalone" from the perspective of the insurance company, not the policyholder.
talzara
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Re: Umbrella Insurance - Worst Case

Post by talzara »

smitcat wrote: Sat Aug 29, 2020 6:22 am I know virtually nothing about renters incurance - will that insurance cover things like when you are traveling, if you rent a car and have a loss, if an accident occurs off the rented site , etc?
Renters insurance provides the same liability coverage as homeowners insurance.

It covers liability outside the rented premises, except at other property owned by you, rented by you, or rented to you.

It does not cover motor vehicles, aircraft, or watercraft.
smitcat
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Re: Umbrella Insurance - Worst Case

Post by smitcat »

talzara wrote: Sat Aug 29, 2020 9:27 am
smitcat wrote: Sat Aug 29, 2020 6:22 am I know virtually nothing about renters incurance - will that insurance cover things like when you are traveling, if you rent a car and have a loss, if an accident occurs off the rented site , etc?
Renters insurance provides the same liability coverage as homeowners insurance.

It covers liability outside the rented premises, except at other property owned by you, rented by you, or rented to you.

It does not cover motor vehicles, aircraft, or watercraft.
Thank you
talzara
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Re: Umbrella Insurance - Worst Case

Post by talzara »

Swimmer wrote: Sat Aug 29, 2020 8:29 am
neilpilot wrote: Fri Aug 28, 2020 7:16 pm Maybe Swimmer exhibits some undisclosed risk factor? We have 2 cars and are 70, and our umbrella is $272, for $2M. So I don't consider $500 for half our policy limit as "super cheap".
No, don’t believe so. I’m 70. DH is 76. No violations or accidents. One low-mileage vehicle, one golf cart, primary home and condo. I know the fact we live in Florida doesn’t help. Allstate and State Farm rates about the same. Should we insurance shop? Anyone in comparable situation?
Being age 70 or over is a risk factor. Some insurers use a higher age threshold, so you might pay less if you're aged 70-74.

Florida is also a high-risk state. Florida ranks #1 in the percentage of uninsured drivers, and the state minimum liability limits are very low. In a multi-car collision, the driver with the umbrella policy could end up paying for more of it.

RLI publishes all of its umbrella rates on the last page of its application. Compare Florida to Minnesota, especially the riskiest ZIP codes:
runswithscissors
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Re: Umbrella Insurance - Worst Case

Post by runswithscissors »

I assume the number of people struck by lightning annually is far below the number of claims paid out by umbrella policies. I take cover during a thunderstorm mostly in fear of being struck by lightning. Although this may seem irrational given the statistical likelihood of being struck, I still take cover. Perhaps for similar reasons, I pay for an umbrella policy.
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willthrill81
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Re: Umbrella Insurance - Worst Case

Post by willthrill81 »

talzara wrote: Sat Aug 29, 2020 9:46 am
Swimmer wrote: Sat Aug 29, 2020 8:29 am
neilpilot wrote: Fri Aug 28, 2020 7:16 pm Maybe Swimmer exhibits some undisclosed risk factor? We have 2 cars and are 70, and our umbrella is $272, for $2M. So I don't consider $500 for half our policy limit as "super cheap".
No, don’t believe so. I’m 70. DH is 76. No violations or accidents. One low-mileage vehicle, one golf cart, primary home and condo. I know the fact we live in Florida doesn’t help. Allstate and State Farm rates about the same. Should we insurance shop? Anyone in comparable situation?
Being age 70 or over is a risk factor.
IIRC, drivers age 65 are about as likely to be involved in an auto accident as drivers age 16, and older than that, the risk is even higher.
“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
neilpilot
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Re: Umbrella Insurance - Worst Case

Post by neilpilot »

willthrill81 wrote: Sat Aug 29, 2020 10:37 am
talzara wrote: Sat Aug 29, 2020 9:46 am
Swimmer wrote: Sat Aug 29, 2020 8:29 am
neilpilot wrote: Fri Aug 28, 2020 7:16 pm Maybe Swimmer exhibits some undisclosed risk factor? We have 2 cars and are 70, and our umbrella is $272, for $2M. So I don't consider $500 for half our policy limit as "super cheap".
No, don’t believe so. I’m 70. DH is 76. No violations or accidents. One low-mileage vehicle, one golf cart, primary home and condo. I know the fact we live in Florida doesn’t help. Allstate and State Farm rates about the same. Should we insurance shop? Anyone in comparable situation?
Being age 70 or over is a risk factor.
IIRC, drivers age 65 are about as likely to be involved in an auto accident as drivers age 16, and older than that, the risk is even higher.
But my auto insurance isn't excessive, and my umbrella seems reasonable (see above). So as 70 year olds our risk can't be classed the same as a new aged 16 driver.
smitcat
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Re: Umbrella Insurance - Worst Case

Post by smitcat »

talzara wrote: Sat Aug 29, 2020 9:46 am
Swimmer wrote: Sat Aug 29, 2020 8:29 am
neilpilot wrote: Fri Aug 28, 2020 7:16 pm Maybe Swimmer exhibits some undisclosed risk factor? We have 2 cars and are 70, and our umbrella is $272, for $2M. So I don't consider $500 for half our policy limit as "super cheap".
No, don’t believe so. I’m 70. DH is 76. No violations or accidents. One low-mileage vehicle, one golf cart, primary home and condo. I know the fact we live in Florida doesn’t help. Allstate and State Farm rates about the same. Should we insurance shop? Anyone in comparable situation?
Being age 70 or over is a risk factor. Some insurers use a higher age threshold, so you might pay less if you're aged 70-74.

Florida is also a high-risk state. Florida ranks #1 in the percentage of uninsured drivers, and the state minimum liability limits are very low. In a multi-car collision, the driver with the umbrella policy could end up paying for more of it.

RLI publishes all of its umbrella rates on the last page of its application. Compare Florida to Minnesota, especially the riskiest ZIP codes:
Dependent upon the specific zip code they could easily be the same.
afan
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Re: Umbrella Insurance - Worst Case

Post by afan »

willthrill81 wrote: Sat Aug 29, 2020 10:37 am

IIRC, drivers age 65 are about as likely to be involved in an auto accident as drivers age 16, and older than that, the risk is even higher.
https://aaafoundation.org/rates-motor-v ... 20examined.

The risk does go up at older ages, but nowhere close to new driver teenagers.
60-69 year old drivers are the safest.


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CurlyDave
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Re: Umbrella Insurance - Worst Case

Post by CurlyDave »

afan wrote: Sat Aug 29, 2020 1:10 pm
...The risk does go up at older ages, but nowhere close to new driver teenagers.
60-69 year old drivers are the safest...
And, I know from my own experience that older driver also drive fewer miles per year than younger ones.
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willthrill81
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Re: Umbrella Insurance - Worst Case

Post by willthrill81 »

afan wrote: Sat Aug 29, 2020 1:10 pm
willthrill81 wrote: Sat Aug 29, 2020 10:37 am

IIRC, drivers age 65 are about as likely to be involved in an auto accident as drivers age 16, and older than that, the risk is even higher.
https://aaafoundation.org/rates-motor-v ... 20examined.

The risk does go up at older ages, but nowhere close to new driver teenagers.
60-69 year old drivers are the safest.


Image
Gotcha. I was misinformed.

And as CurlyDave aptly pointed out, older drivers typically drive significantly fewer miles as well.

I did see data earlier today that indicated that elderly drivers are about 17 times more likely to die in an auto accident though, due to their frailty. That doesn't really apply to this thread though.
“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
afan
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Re: Umbrella Insurance - Worst Case

Post by afan »

CurlyDave wrote: Sat Aug 29, 2020 2:14 pm
afan wrote: Sat Aug 29, 2020 1:10 pm
...The risk does go up at older ages, but nowhere close to new driver teenagers.
60-69 year old drivers are the safest...
And, I know from my own experience that older driver also drive fewer miles per year than younger ones.
Data quoted was per 100,000,000 miles driven. How much they drive would not affect this figure.

The older folks are somewhat safer than people in their 20's.
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
ncbill
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Re: Umbrella Insurance - Worst Case

Post by ncbill »

Bobby206 wrote: Fri Aug 28, 2020 3:12 pm
ncbill wrote: Fri Aug 28, 2020 12:33 pm
afan wrote: Tue Aug 25, 2020 7:14 pm
The choice presented to the plaintiff is generally to settle for the policy limits and get paid immediately or have to go to court try to do better than the limits and then have to collect. They pretty much always settle for the limits unless it's a heinous incident (damages several orders of magnitude greater than the policy limits and absolutely no question as to liability) and the defendant is extremely well heeled.
Which means it depends in part on what those policy limits are. If someone has a low minimum auto policy, no umbrella and a bad injury, then there is reason to go after personal assets. More coverage, whether under auto or umbrella may make settling for policy limits more appealing.

Cases take years, even when they settle.
For someone taking RMDs or within a few years of doing so, that income stream becomes fair game for the plaintiff. If the defendant is 30, then no one is going to wait for RMDs. If they are 70, then the RMDs will kick while they are still doing the preliminaries on the case.

Many bogleheads will have 6 figure annual RMDs, a tempting target if the insurance coverage and taxable estate are not enough.

Since most people are limited in how much they are allowed to put into tax favored accounts, many have more money in taxable than tax favored accounts.

The asset protection of the tax favored accounts is nice but far from a complete solution.
A Boglehead would just file bankruptcy to discharge the judgment...though I'm assuming a Boglehead wouldn't be DUI.
Most BH have dough so declaring BK won't help as most of us have way more than the BK exemption amounts.
Afan's scenario appears to posit a judgment has already been awarded above the amount of insurance coverage plus attachable assets.

In that case, filing bankruptcy to discharge the remainder of the judgment would indeed protect future RMDs from being seized,

(I'm assuming those RMDs are coming from a creditor-protected retirement account.)
ncbill
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Re: Umbrella Insurance - Worst Case

Post by ncbill »

clown wrote: Fri Aug 28, 2020 4:14 pm To OP - I suggest that there is a risk in your situation that is not obvious. You are young, high income earners. A lawsuit against you could focus on your future earning power rather than current assets. Get the umbrella. It is cheap. One thing, I don't know how you get umbrella when you don't own a car, but the insurers probably have figured it out.
Again, why wouldn't someone who has been found at fault legally in a civil proceeding & faces a monetary judgment far in excess of their attachable assets (and insurance limits) not just file bankruptcy to discharge the remainder of the judgment?

I have been personally named in a lawsuit against the business where I was an employee where the plaintiff was asking in excess of $25 million for injuries suffered from a "slip & fall"...a judgment for that amount would have been slightly in excess of my umbrella coverage. :)
texasdiver
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Re: Umbrella Insurance - Worst Case

Post by texasdiver »

BolderBoy wrote: Mon Aug 24, 2020 1:42 pm Someone gave a reason in another thread, which I thought was profound:

You purchase a liability umbrella policy for a once-per-year premium amount of say $200 in order to have the ongoing services of a $500/hr lawyer should you need one.
This.

I have 3 kids (two of them driving age and the third to get a driving permit in 6 months) as well as 3 cars on the premises.

Our $2 million umbrella means that the insurance company has a VERY powerful incentive to bring on their best attorneys to defend against any sort of claims we ever face should any of my kids (or my wife and I) ever get into any sort of liability situation due to driving or anything else.

One civil case in a lifetime would easily wipe out 20 years of umbrella premiums just for the attorneys fees, not to mention any settlement.
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willthrill81
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Re: Umbrella Insurance - Worst Case

Post by willthrill81 »

texasdiver wrote: Sat Aug 29, 2020 5:20 pm
BolderBoy wrote: Mon Aug 24, 2020 1:42 pm Someone gave a reason in another thread, which I thought was profound:

You purchase a liability umbrella policy for a once-per-year premium amount of say $200 in order to have the ongoing services of a $500/hr lawyer should you need one.
This.

I have 3 kids (two of them driving age and the third to get a driving permit in 6 months) as well as 3 cars on the premises.

Our $2 million umbrella means that the insurance company has a VERY powerful incentive to bring on their best attorneys to defend against any sort of claims we ever face should any of my kids (or my wife and I) ever get into any sort of liability situation due to driving or anything else.

One civil case in a lifetime would easily wipe out 20 years of umbrella premiums just for the attorneys fees, not to mention any settlement.
I don't disagree with any of that. But the insurance companies aren't losing money either when they're selling umbrella insurance. The only reason that they can afford to offer $200 premiums for $2 million of coverage is if the risk of loss is tiny, smaller than 1 in 10,000 ($200/$2 million). I would never blame anyone for electing not to insure a risk with a less than 1 in 10,000 chance of occurring.
“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
afan
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Re: Umbrella Insurance - Worst Case

Post by afan »

ncbill wrote: Sat Aug 29, 2020 4:29 pm
Bobby206 wrote: Fri Aug 28, 2020 3:12 pm
ncbill wrote: Fri Aug 28, 2020 12:33 pm
afan wrote: Tue Aug 25, 2020 7:14 pm
The choice presented to the plaintiff is generally to settle for the policy limits and get paid immediately or have to go to court try to do better than the limits and then have to collect. They pretty much always settle for the limits unless it's a heinous incident (damages several orders of magnitude greater than the policy limits and absolutely no question as to liability) and the defendant is extremely well heeled.
Which means it depends in part on what those policy limits are. If someone has a low minimum auto policy, no umbrella and a bad injury, then there is reason to go after personal assets. More coverage, whether under auto or umbrella may make settling for policy limits more appealing.

Cases take years, even when they settle.
For someone taking RMDs or within a few years of doing so, that income stream becomes fair game for the plaintiff. If the defendant is 30, then no one is going to wait for RMDs. If they are 70, then the RMDs will kick while they are still doing the preliminaries on the case.

Many bogleheads will have 6 figure annual RMDs, a tempting target if the insurance coverage and taxable estate are not enough.

Since most people are limited in how much they are allowed to put into tax favored accounts, many have more money in taxable than tax favored accounts.

The asset protection of the tax favored accounts is nice but far from a complete solution.
A Boglehead would just file bankruptcy to discharge the judgment...though I'm assuming a Boglehead wouldn't be DUI.
Most BH have dough so declaring BK won't help as most of us have way more than the BK exemption amounts.
Afan's scenario appears to posit a judgment has already been awarded above the amount of insurance coverage plus attachable assets.

In that case, filing bankruptcy to discharge the remainder of the judgment would indeed protect future RMDs from being seized,

(I'm assuming those RMDs are coming from a creditor-protected retirement account.)
Actually, I also was thinking of negotiations towards a settlement. That would depend on how much money was available to pay, between insurance, taxable assets and retirement funds. If the retirement funds would represent a substantial amount of money and RMDs had already started or would do so soon, then they would be pulled into the equation.


IANAL, but I thought to succeed in declaring bankruptcy you actually had to be bankrupt. If you have, or are about to begin, an income stream that could pay the plaintiff, can you make that go away by declaring bankruptcy? Remember, we are postulating required minimum distributions. That money will be coming in and the plaintiff would have no reason to accept a lower payment. It would be an annuity for them.
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Re: Umbrella Insurance - Worst Case

Post by afan »

willthrill81 wrote: Sat Aug 29, 2020 5:26 pm
texasdiver wrote: Sat Aug 29, 2020 5:20 pm
BolderBoy wrote: Mon Aug 24, 2020 1:42 pm Someone gave a reason in another thread, which I thought was profound:

You purchase a liability umbrella policy for a once-per-year premium amount of say $200 in order to have the ongoing services of a $500/hr lawyer should you need one.
This.

I have 3 kids (two of them driving age and the third to get a driving permit in 6 months) as well as 3 cars on the premises.

Our $2 million umbrella means that the insurance company has a VERY powerful incentive to bring on their best attorneys to defend against any sort of claims we ever face should any of my kids (or my wife and I) ever get into any sort of liability situation due to driving or anything else.

One civil case in a lifetime would easily wipe out 20 years of umbrella premiums just for the attorneys fees, not to mention any settlement.
I don't disagree with any of that. But the insurance companies aren't losing money either when they're selling umbrella insurance. The only reason that they can afford to offer $200 premiums for $2 million of coverage is if the risk of loss is tiny, smaller than 1 in 10,000 ($200/$2 million). I would never blame anyone for electing not to insure a risk with a less than 1 in 10,000 chance of occurring.
Some would see this as exactly what insurance is for. Low probability of a potentially catastrophic event.
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Re: Umbrella Insurance - Worst Case

Post by willthrill81 »

afan wrote: Sat Aug 29, 2020 5:28 pm IANAL, but I thought to succeed in declaring bankruptcy you actually had to be bankrupt. If you have, or are about to begin, an income stream that could pay the plaintiff, can you make that go away by declaring bankruptcy? Remember, we are postulating required minimum distributions. That money will be coming in and the plaintiff would have no reason to accept a lower payment. It would be an annuity for them.
I'm not sure about the answer to that question, but it's worth pointing out that, as noted here the federal bankruptcy exemption cap on IRAs and Roth IRAs is $1,362,800. It seems to me that there is no cap on ERISA accounts though.
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Re: Umbrella Insurance - Worst Case

Post by willthrill81 »

afan wrote: Sat Aug 29, 2020 5:29 pm
willthrill81 wrote: Sat Aug 29, 2020 5:26 pm
texasdiver wrote: Sat Aug 29, 2020 5:20 pm
BolderBoy wrote: Mon Aug 24, 2020 1:42 pm Someone gave a reason in another thread, which I thought was profound:

You purchase a liability umbrella policy for a once-per-year premium amount of say $200 in order to have the ongoing services of a $500/hr lawyer should you need one.
This.

I have 3 kids (two of them driving age and the third to get a driving permit in 6 months) as well as 3 cars on the premises.

Our $2 million umbrella means that the insurance company has a VERY powerful incentive to bring on their best attorneys to defend against any sort of claims we ever face should any of my kids (or my wife and I) ever get into any sort of liability situation due to driving or anything else.

One civil case in a lifetime would easily wipe out 20 years of umbrella premiums just for the attorneys fees, not to mention any settlement.
I don't disagree with any of that. But the insurance companies aren't losing money either when they're selling umbrella insurance. The only reason that they can afford to offer $200 premiums for $2 million of coverage is if the risk of loss is tiny, smaller than 1 in 10,000 ($200/$2 million). I would never blame anyone for electing not to insure a risk with a less than 1 in 10,000 chance of occurring.
Some would see this as exactly what insurance is for. Low probability of a potentially catastrophic event.
As I said, I don't disagree. At the same time, if someone said something to the effect of "I don't care to bother insuring against a risk smaller than 1 in 10,000," I wouldn't fault them for it.
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Re: Umbrella Insurance - Worst Case

Post by oldfort »

afan wrote: Sat Aug 29, 2020 5:28 pm
ncbill wrote: Sat Aug 29, 2020 4:29 pm
Bobby206 wrote: Fri Aug 28, 2020 3:12 pm
ncbill wrote: Fri Aug 28, 2020 12:33 pm
afan wrote: Tue Aug 25, 2020 7:14 pm

Which means it depends in part on what those policy limits are. If someone has a low minimum auto policy, no umbrella and a bad injury, then there is reason to go after personal assets. More coverage, whether under auto or umbrella may make settling for policy limits more appealing.

Cases take years, even when they settle.
For someone taking RMDs or within a few years of doing so, that income stream becomes fair game for the plaintiff. If the defendant is 30, then no one is going to wait for RMDs. If they are 70, then the RMDs will kick while they are still doing the preliminaries on the case.

Many bogleheads will have 6 figure annual RMDs, a tempting target if the insurance coverage and taxable estate are not enough.

Since most people are limited in how much they are allowed to put into tax favored accounts, many have more money in taxable than tax favored accounts.

The asset protection of the tax favored accounts is nice but far from a complete solution.
A Boglehead would just file bankruptcy to discharge the judgment...though I'm assuming a Boglehead wouldn't be DUI.
Most BH have dough so declaring BK won't help as most of us have way more than the BK exemption amounts.
Afan's scenario appears to posit a judgment has already been awarded above the amount of insurance coverage plus attachable assets.

In that case, filing bankruptcy to discharge the remainder of the judgment would indeed protect future RMDs from being seized,

(I'm assuming those RMDs are coming from a creditor-protected retirement account.)
Actually, I also was thinking of negotiations towards a settlement. That would depend on how much money was available to pay, between insurance, taxable assets and retirement funds. If the retirement funds would represent a substantial amount of money and RMDs had already started or would do so soon, then they would be pulled into the equation.


IANAL, but I thought to succeed in declaring bankruptcy you actually had to be bankrupt. If you have, or are about to begin, an income stream that could pay the plaintiff, can you make that go away by declaring bankruptcy? Remember, we are postulating required minimum distributions. That money will be coming in and the plaintiff would have no reason to accept a lower payment. It would be an annuity for them.
As far as bankruptcy is concerned, RMDs are not a future income stream like an annuity. They aren't part of the bankruptcy estate until you make the withdrawals. RMDs are not an income stream.
Last edited by oldfort on Sat Aug 29, 2020 6:02 pm, edited 1 time in total.
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Re: Umbrella Insurance - Worst Case

Post by oldfort »

texasdiver wrote: Sat Aug 29, 2020 5:20 pm
BolderBoy wrote: Mon Aug 24, 2020 1:42 pm Someone gave a reason in another thread, which I thought was profound:

You purchase a liability umbrella policy for a once-per-year premium amount of say $200 in order to have the ongoing services of a $500/hr lawyer should you need one.
This.

I have 3 kids (two of them driving age and the third to get a driving permit in 6 months) as well as 3 cars on the premises.

Our $2 million umbrella means that the insurance company has a VERY powerful incentive to bring on their best attorneys to defend against any sort of claims we ever face should any of my kids (or my wife and I) ever get into any sort of liability situation due to driving or anything else.

One civil case in a lifetime would easily wipe out 20 years of umbrella premiums just for the attorneys fees, not to mention any settlement.
The OP doesn't drive, no one in his family drives, and he doesn't have any kids.
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Re: Umbrella Insurance - Worst Case

Post by afan »

oldfort wrote: Sat Aug 29, 2020 5:52 pm
afan wrote: Sat Aug 29, 2020 5:28 pm
ncbill wrote: Sat Aug 29, 2020 4:29 pm
Bobby206 wrote: Fri Aug 28, 2020 3:12 pm
ncbill wrote: Fri Aug 28, 2020 12:33 pm

A Boglehead would just file bankruptcy to discharge the judgment...though I'm assuming a Boglehead wouldn't be DUI.
Most BH have dough so declaring BK won't help as most of us have way more than the BK exemption amounts.
Afan's scenario appears to posit a judgment has already been awarded above the amount of insurance coverage plus attachable assets.

In that case, filing bankruptcy to discharge the remainder of the judgment would indeed protect future RMDs from being seized,

(I'm assuming those RMDs are coming from a creditor-protected retirement account.)
Actually, I also was thinking of negotiations towards a settlement. That would depend on how much money was available to pay, between insurance, taxable assets and retirement funds. If the retirement funds would represent a substantial amount of money and RMDs had already started or would do so soon, then they would be pulled into the equation.


IANAL, but I thought to succeed in declaring bankruptcy you actually had to be bankrupt. If you have, or are about to begin, an income stream that could pay the plaintiff, can you make that go away by declaring bankruptcy? Remember, we are postulating required minimum distributions. That money will be coming in and the plaintiff would have no reason to accept a lower payment. It would be an annuity for them.
As far as bankruptcy is concerned, RMDs are not a future income stream like an annuity. They aren't part of the bankruptcy estate until you make the withdrawals. RMDs are not an income stream.
But since they are required, they become available to the creditor when taken. Thus, they are a future together income stream. My estate attorney pointed out that this is a big hole in the thinking that the retirement accounts are safe. The assets are only safe while they are in the account.

She noted that someone who is very concerned about this might want to do Roth conversions so that there would be smaller or no RMDs. Of course, you still need money to live on, whether from SS, taxable accounts or retirement accounts.
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Re: Umbrella Insurance - Worst Case

Post by oldfort »

afan wrote: Sat Aug 29, 2020 6:46 pm
oldfort wrote: Sat Aug 29, 2020 5:52 pm
afan wrote: Sat Aug 29, 2020 5:28 pm
ncbill wrote: Sat Aug 29, 2020 4:29 pm
Bobby206 wrote: Fri Aug 28, 2020 3:12 pm

Most BH have dough so declaring BK won't help as most of us have way more than the BK exemption amounts.
Afan's scenario appears to posit a judgment has already been awarded above the amount of insurance coverage plus attachable assets.

In that case, filing bankruptcy to discharge the remainder of the judgment would indeed protect future RMDs from being seized,

(I'm assuming those RMDs are coming from a creditor-protected retirement account.)
Actually, I also was thinking of negotiations towards a settlement. That would depend on how much money was available to pay, between insurance, taxable assets and retirement funds. If the retirement funds would represent a substantial amount of money and RMDs had already started or would do so soon, then they would be pulled into the equation.


IANAL, but I thought to succeed in declaring bankruptcy you actually had to be bankrupt. If you have, or are about to begin, an income stream that could pay the plaintiff, can you make that go away by declaring bankruptcy? Remember, we are postulating required minimum distributions. That money will be coming in and the plaintiff would have no reason to accept a lower payment. It would be an annuity for them.
As far as bankruptcy is concerned, RMDs are not a future income stream like an annuity. They aren't part of the bankruptcy estate until you make the withdrawals. RMDs are not an income stream.
But since they are required, they become available to the creditor when taken. Thus, they are a future together income stream. My estate attorney pointed out that this is a big hole in the thinking that the retirement accounts are safe. The assets are only safe while they are in the account.

She noted that someone who is very concerned about this might want to do Roth conversions so that there would be smaller or no RMDs. Of course, you still need money to live on, whether from SS, taxable accounts or retirement accounts.
Take this case: you have $2M in ERISA accounts and no other assets. You have a judgement against you for $1M. You file bankruptcy. The debt is completely discharged. Then, when you go to withdraw your RMDs, the former creditor can't touch it because the debt's already been eliminated in bankruptcy.
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Re: Umbrella Insurance - Worst Case

Post by afan »

Provided the court let's you do that.
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Re: Umbrella Insurance - Worst Case

Post by ncbill »

afan wrote: Sat Aug 29, 2020 7:54 pm Provided the court let's you do that.
What objection do you think the bankruptcy court would have?

Also, technically one doesn't have to take a RMD in any given year...they can choose to incur the penalty instead.
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Re: Umbrella Insurance - Worst Case

Post by afan »

Court could object that you are not bankrupt. Deciding that you don't want to pay a bill is not the same as bankrupt.
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Re: Umbrella Insurance - Worst Case

Post by ncbill »

afan wrote: Sun Aug 30, 2020 2:00 pm Court could object that you are not bankrupt. Deciding that you don't want to pay a bill is not the same as bankrupt.
Is your attorney claiming the above or are you just speculating?

Again, absent DUI I see no trouble discharging such a judgment via bankruptcy.

If RMDs have already started one could elect to skip that year's RMD, paying the hefty penalty instead of letting the creditor get their hands on a dime of it.
Last edited by ncbill on Sun Aug 30, 2020 2:23 pm, edited 1 time in total.
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Re: Umbrella Insurance - Worst Case

Post by oldfort »

afan wrote: Sun Aug 30, 2020 2:00 pm Court could object that you are not bankrupt. Deciding that you don't want to pay a bill is not the same as bankrupt.
How could the court decide you aren’t bankrupt when you are bankrupt? Bankrupt means your non-exempt assets, which in my scenario are zero, are less than the sum of all outstanding debts.
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Re: Umbrella Insurance - Worst Case

Post by wwtraveler »

Wow this thread took some interesting turns down various rabbit holes!

Check out this article that talks about some of the ERISA vs. non ERISA retirement account implications. As the article alludes to, there's some sway and laws today can change but it's often more overwhelming to change laws then to even get them past (at basically all levels of government perhaps due to inertia of these things). As always, your actual mileage may vary.

https://www.wealthmanagement.com/asset- ... r-millions
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Re: Umbrella Insurance - Worst Case

Post by willthrill81 »

oldfort wrote: Sat Aug 29, 2020 6:53 pm
afan wrote: Sat Aug 29, 2020 6:46 pm
oldfort wrote: Sat Aug 29, 2020 5:52 pm
afan wrote: Sat Aug 29, 2020 5:28 pm
ncbill wrote: Sat Aug 29, 2020 4:29 pm

Afan's scenario appears to posit a judgment has already been awarded above the amount of insurance coverage plus attachable assets.

In that case, filing bankruptcy to discharge the remainder of the judgment would indeed protect future RMDs from being seized,

(I'm assuming those RMDs are coming from a creditor-protected retirement account.)
Actually, I also was thinking of negotiations towards a settlement. That would depend on how much money was available to pay, between insurance, taxable assets and retirement funds. If the retirement funds would represent a substantial amount of money and RMDs had already started or would do so soon, then they would be pulled into the equation.


IANAL, but I thought to succeed in declaring bankruptcy you actually had to be bankrupt. If you have, or are about to begin, an income stream that could pay the plaintiff, can you make that go away by declaring bankruptcy? Remember, we are postulating required minimum distributions. That money will be coming in and the plaintiff would have no reason to accept a lower payment. It would be an annuity for them.
As far as bankruptcy is concerned, RMDs are not a future income stream like an annuity. They aren't part of the bankruptcy estate until you make the withdrawals. RMDs are not an income stream.
But since they are required, they become available to the creditor when taken. Thus, they are a future together income stream. My estate attorney pointed out that this is a big hole in the thinking that the retirement accounts are safe. The assets are only safe while they are in the account.

She noted that someone who is very concerned about this might want to do Roth conversions so that there would be smaller or no RMDs. Of course, you still need money to live on, whether from SS, taxable accounts or retirement accounts.
Take this case: you have $2M in ERISA accounts and no other assets. You have a judgement against you for $1M. You file bankruptcy. The debt is completely discharged. Then, when you go to withdraw your RMDs, the former creditor can't touch it because the debt's already been eliminated in bankruptcy.
While I'm not an attorney, that sounds like a perfectly plausible strategy. If you had no non-ERISA accounts though, I doubt that a plaintiff's attorney would pursue such a suit in the first place though.
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