Umbrella liability - is it necessary?

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UALflyer
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Re: Umbrella liability - is it necessary?

Post by UALflyer »

azanon wrote: Tue Nov 16, 2021 8:12 am OP - probably not, provided you have healthy limits set on all of your primary insurance policies (like auto). In almost all cases, in a worst case scenario, an attorney would probably just try to go after whatever your main policy limit is.

I think anyone that thinks this is worth it should be playing the lottery too, since the chance of winning it and actually using an umbrella policy in a court judgement are roughly equivalent.

Don't anyone get me wrong - I'm actually boglehead and VERY low risk kind of person. But that should never been confused with an obsession for absolutely zero risk. Similar to retirement plans that aim for absolutely zero risk, the cost of getting that last percent or two of risk away is exponential. Now don't take that the wrong way, I'm not claiming an umbrella policy is expensive in an of itself, but I am saying it's expensive relative to the chance you'll use it (~0.0000x%).

Also, just fwiw, I do believe in the placebo effect. As it applies here, if it's going to make you feel a lot more comfortable to own an umbrella policy day-to-day, then it's probably worth the cost. But that's because it's worth it to you psychologically.
How much liability insurance is "enough" has always been a difficult question, but for reasons very different from the ones that you've mentioned. The answer depends in part on the implications that an excess judgment would have on you and the likelihood that such an excess judgment would be pursued against you, which requires an examination of your assets that would be exposed to such excess judgments.

An average family has about $8,863 in savings (https://www.cnbc.com/2019/03/11/how-muc ... y-age.html), and the median 401(k) balance is $22,217 (https://www.businessinsider.com/persona ... retirement) (and 401(k) balances enjoy substantial asset protection benefits). So, there aren't a lot of people out there with substantial exposed assets, and most of those people have sufficient liability limits. This is the reason that most people out there don't want or need much liability protection, as they simply don't have all that much to protect.

So, while it is highly uncommon to have a civil verdict where an individual defendant has $1MM in insurance, the insurance company offers its policy limits, the plaintiff rejects the offer (without a way to pursue a bad faith claim against the carrier), obtains a larger verdict and then pursues the defendant's personal assets, it is for reasons other than those that you've mentioned. Namely, most people out there just aren't the proverbial "deep pocket" and, if they are, they typically have sufficient insurance.

In other words, the way that you would go about deciding the amount of liability coverage that you need depends in large part on how attractive of a litigation target you represent. I don't think that people are suggesting that those earning $50K/year in perpetuity, for instance, need an umbrella policy at all. If, however, you have a person, like many on this board, earning hundreds of thousands a year and/or have 7 figure balances in their individual taxable accounts, then larger umbrella policies start to make a lot more sense.
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Sandtrap
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Re: Umbrella liability - is it necessary?

Post by Sandtrap »

stocknoob4111 wrote: Thu Nov 04, 2021 8:01 am I have a NW around $1.2M, unfortunately $800K of it is in my taxable brokerage which does not have any protections against lawsuits etc. Should I be considering getting an umbrella liability policy? I have not really thought about this up until now.

What are the major coverage gaps in these policies? How many of you have bought such a policy and is it really essentially for anyone of a certain net worth?
Contact your homeowners insurance or other insurance for an umbrella policy. Get quotes from others. You might find the costs are tiny for peace of mind and so forth. You have a lot to lose. . .so?

j :D
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ncbill
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Re: Umbrella liability - is it necessary?

Post by ncbill »

UALflyer wrote: Wed Nov 17, 2021 9:25 am
oldfort wrote: Tue Nov 16, 2021 9:03 pm
ResearchMed wrote: Thu Nov 04, 2021 5:22 pm I'v always wondered... If someone has, say, all of their money in a nice, safe, 403b ERISA account, that's great.
But what happens when they need to remove money so they can spend it on living expenses?
Is the money vulnerable while being parked temporarily in a checking account or such?

RM
Assuming you were successfully sued, the verdict exceeded your non-exempt assets, and someone tried to garnish your checking account, most people would file bankruptcy to discharge the remaining debts.
As people have previously pointed out to you in other threads, bankruptcy doesn't work this way and never has. To the extent that you have a substantial exposed income stream and/or exposed assets, you simply don't get to wipe out judgments and other unsecured obligations while keeping your exposed income stream and/or exposed assets intact.

People make this mistake all the time, as there are constant posts along the lines of "although I may have exposed assets and/or income stream, if there's a judgment against me, I'll just file for bankruptcy." Aside from the fact that a bankruptcy filing can have long lasting and expensive financial implications, the bankruptcy code does not allow a person with exposed assets and/or income stream to keep them all while getting rid of judgments and other unsecured obligations.

On a related note, there are several posts in this and other threads on this subject that talk about "protected assets." There can be a big difference between the types of assets that are automatically protected from liens and garnishments and those that are also protected, but only if the debtor files for bankruptcy. For quite a few people out there, avoiding a bankruptcy filing can alone be worth a couple hundred dollars in insurance premiums, as a bankruptcy filing carries extensive and expensive financial implications. Likewise, as several people above have pointed out, even if the assets themselves are protected from attachment and the like by judgment creditors, in quite a few cases distributions of the above assets do not enjoy the same protections.
Sure, any non-exempt assets can be seized by the judgement creditor.

But what's your definition of "exposed income stream?"

My state doesn't allow wage garnishment, but from ads I've seen when visiting other states placed by bankruptcy attorneys there it sure seems like BK both ends wage garnishment by the judgment creditor(s) plus discharges any remaining judgment(s) with some limited exemptions, e.g. not if the defendant was DUI while operating the vehicle.
UALflyer
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Re: Umbrella liability - is it necessary?

Post by UALflyer »

ncbill wrote: Wed Nov 17, 2021 12:39 pm My state doesn't allow wage garnishment
You're in NC, right? If so, it's actually a lot more nuanced: https://www.labor.nc.gov/workplace-righ ... h-carolina

It gets even more technical, as aside from wage garnishment, you still have to deposit the funds somewhere, at which point you have to look at the rules that govern bank account garnishments and attachment.
but from ads I've seen when visiting other states placed by bankruptcy attorneys there it sure seems like BK both ends wage garnishment by the judgment creditor(s) plus discharges any remaining judgment(s) with some limited exemptions, e.g. not if the defendant was DUI while operating the vehicle.
I sincerely hope that people don't make these decisions based on the bankruptcy ads. Do people really think that if they have a balance in their taxable brokerage account or elsewhere and there's a judgment against them, they can just file for bankruptcy and get to keep their entire account balance? This is not and has never been the case. Otherwise, you'd be able to max out your credit cards, deposit the proceeds in your Vanguard brokerage, file for bankruptcy and keep the money while discharging your unsecured debts.
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Re: Umbrella liability - is it necessary?

Post by ncbill »

UALflyer wrote: Wed Nov 17, 2021 12:56 pm
ncbill wrote: Wed Nov 17, 2021 12:39 pm My state doesn't allow wage garnishment
You're in NC, right? If so, it's actually a lot more nuanced: https://www.labor.nc.gov/workplace-righ ... h-carolina

It gets even more technical, as aside from wage garnishment, you still have to deposit the funds somewhere, at which point you have to look at the rules that govern bank account garnishments and attachment.
but from ads I've seen when visiting other states placed by bankruptcy attorneys there it sure seems like BK both ends wage garnishment by the judgment creditor(s) plus discharges any remaining judgment(s) with some limited exemptions, e.g. not if the defendant was DUI while operating the vehicle.
I sincerely hope that people don't make these decisions based on the bankruptcy ads. Do people really think that if they have a balance in their taxable brokerage account or elsewhere and there's a judgment against them, they can just file for bankruptcy and get to keep their entire account balance? This is not and has never been the case. Otherwise, you'd be able to max out your credit cards, deposit the proceeds in your Vanguard brokerage, file for bankruptcy and keep the money while discharging your unsecured debts.
I've never claimed that non-exempt assets wouldn't be lost to a judgment creditor.

Nor did I say the ads claimed that either...they were focused on ending wage garnishment via BK.

But the part of your post highlighted above is an excellent reason to file BK in order to discharge any excess judgment debt after the creditor has already seized (or will seize) any non-exempt assets & where the creditor would otherwise seek to recover any remaining excess judgement via wage garnishment.
UALflyer
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Re: Umbrella liability - is it necessary?

Post by UALflyer »

ncbill wrote: Wed Nov 17, 2021 2:35 pmI've never claimed that non-exempt assets wouldn't be lost to a judgment creditor.

Nor did I say the ads claimed that either...they were focused on ending wage garnishment via BK.

But the part of your post highlighted above is an excellent reason to file BK in order to discharge any excess judgment debt after the creditor has already seized (or will seize) any non-exempt assets & where the creditor would otherwise seek to recover any remaining excess judgement via wage garnishment.
In general, that's not how it works. People with 6 figures incomes won't qualify for an outright discharge, so you'll be forced into something like Chapter 13, which creates a 3-5 year plan under which a portion of your income stream goes to your creditors. In other words, you don't just get to preserve your entire unprotected income stream, while getting rid of your unsecured obligations.
NotWhoYouThink
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Re: Umbrella liability - is it necessary?

Post by NotWhoYouThink »

I got my first homeowner's insurance policy 35 years ago. Now have a paid-off mortgage, so no one is forcing me to have a policy. 35 years, 0 claims.

Still have the policy, have umbrella coverage on top of that policy, and will probably increase coverage next year because of inflation. Hope to go another 35 years without filing a claim, the insurance company can keep the money as long as they have lawyers standing by in case I ever need them.
ncbill
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Re: Umbrella liability - is it necessary?

Post by ncbill »

UALflyer wrote: Wed Nov 17, 2021 3:24 pm
ncbill wrote: Wed Nov 17, 2021 2:35 pmI've never claimed that non-exempt assets wouldn't be lost to a judgment creditor.

Nor did I say the ads claimed that either...they were focused on ending wage garnishment via BK.

But the part of your post highlighted above is an excellent reason to file BK in order to discharge any excess judgment debt after the creditor has already seized (or will seize) any non-exempt assets & where the creditor would otherwise seek to recover any remaining excess judgement via wage garnishment.
In general, that's not how it works. People with 6 figures incomes won't qualify for an outright discharge, so you'll be forced into something like Chapter 13, which creates a 3-5 year plan under which a portion of your income stream goes to your creditors. In other words, you don't just get to preserve your entire unprotected income stream, while getting rid of your unsecured obligations.
Sorry, I was thinking of a significant excess judgment...e.g. you sent that proverbial bus of neurologists to their deaths by knocking it off the bridge with your vehicle and are now facing an excess judgment (beyond your combined insurance limits & non-exempt assets) of at least 7 figures.

For Chapter 13 the unsecured debt limit is <$500k, so it would be via Chapter 7, which provides a full discharge w/o the petitioner having to qualify under the "median income" test since it is non-consumer debt.

I, of course, still have an umbrella policy so anything like the above can be settled w/o any court proceedings.
oldfort
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Re: Umbrella liability - is it necessary?

Post by oldfort »

UALflyer wrote: Wed Nov 17, 2021 9:25 am
oldfort wrote: Tue Nov 16, 2021 9:03 pm
ResearchMed wrote: Thu Nov 04, 2021 5:22 pm I'v always wondered... If someone has, say, all of their money in a nice, safe, 403b ERISA account, that's great.
But what happens when they need to remove money so they can spend it on living expenses?
Is the money vulnerable while being parked temporarily in a checking account or such?

RM
Assuming you were successfully sued, the verdict exceeded your non-exempt assets, and someone tried to garnish your checking account, most people would file bankruptcy to discharge the remaining debts.
As people have previously pointed out to you in other threads, bankruptcy doesn't work this way and never has. To the extent that you have a substantial exposed income stream and/or exposed assets, you simply don't get to wipe out judgments and other unsecured obligations while keeping your exposed income stream and/or exposed assets intact.

People make this mistake all the time, as there are constant posts along the lines of "although I may have exposed assets and/or income stream, if there's a judgment against me, I'll just file for bankruptcy." Aside from the fact that a bankruptcy filing can have long lasting and expensive financial implications, the bankruptcy code does not allow a person with exposed assets and/or income stream to keep them all while getting rid of judgments and other unsecured obligations.

On a related note, there are several posts in this and other threads on this subject that talk about "protected assets." There can be a big difference between the types of assets that are automatically protected from liens and garnishments and those that are also protected, but only if the debtor files for bankruptcy. For quite a few people out there, avoiding a bankruptcy filing can alone be worth a couple hundred dollars in insurance premiums, as a bankruptcy filing carries extensive and expensive financial implications. Likewise, as several people above have pointed out, even if the assets themselves are protected from attachment and the like by judgment creditors, in quite a few cases distributions of the above assets do not enjoy the same protections.
I don’t know what you mean by exposed income. The reason people file a Chapter 7 bankruptcy is to stop wage garnishment.
talzara
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Re: Umbrella liability - is it necessary?

Post by talzara »

oldfort wrote: Tue Nov 16, 2021 8:57 pm If you're going to look at lifetime risks, if you bought umbrella insurance for 70 years, you should also look at lifetime costs: 70*the annual cost of umbrella insurance or if you want to take the full analysis what would you have if you invested your umbrella premiums for 70 years.
You don't have to do that calculation. Since the overall loss ratio is about 65%, you should expect to give up the other 35% plus earnings.

That assumes your rate is close to your risk. In some cases, you may know that it is not. For example, someone who drives 3,000 miles a year would have an expected loss ratio of only about 20%. There is pay-per mile auto insurance, but there is no pay-per mile umbrella insurance.
UALflyer
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Re: Umbrella liability - is it necessary?

Post by UALflyer »

oldfort wrote: Wed Nov 17, 2021 6:28 pm I don’t know what you mean by exposed income.
"Exposed income" is income that is exposed to judgment creditors, as opposed to the income stream that is statutorily protected, such as social security/SSI payments, disability payments, survivor's payments, etc...
The reason people file a Chapter 7 bankruptcy is to stop wage garnishment.
I would very respectfully suggest that you look up the Chapter 7 qualifications and requirements as well as its downsides, as things work very differently from the way you understand them to be.
Last edited by UALflyer on Wed Nov 17, 2021 7:02 pm, edited 1 time in total.
talzara
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Re: Umbrella liability - is it necessary?

Post by talzara »

laidback_and_relaxed wrote: Wed Nov 17, 2021 9:08 am I recently moved to Southern California and am having problems getting an Umbrella policy. Seems they're really only available from the same carrier that has your home and auto policies. In my case they've been difficult to deal with, AAA of Southern CA. We're a retired couple and for some reason they think my wife is running a business out of the house. She's registered as a notary, though hasn't used it in a long time. The registration expires next year, and I'll try again after that. We're retired, no kids in the house, no dog, no pool. So I've increase the liability in the home and auto policies to $1M as an alternative.
You could also buy a standalone umbrella policy from RLI, USLI, and a few other companies. They sell through independent agents.

Standalone umbrella usually costs more than supported umbrella, but if you can't buy supported, then standalone might be your only choice.
talzara
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Re: Umbrella liability - is it necessary?

Post by talzara »

azanon wrote: Tue Nov 16, 2021 7:14 pm Id love to see a source that supports a claim that 2% drivers would eventually use an umbrella policy. Also provide a source for the 0.03% claim frequency. Provided you have one, I trust you realize claim frequency and award of claim are not the same thing.
I already explained where the 2% comes from. It's the 0.03% annual claim frequency over a lifetime of driving.

Industrywide umbrella claims data is not publicly available. Rate filings are publicly available, but they only give data for one company at a time and often one state at a time. If you look at the rate filings for the largest insurance companies in the largest states, you'll see that 0.03% is a conservative estimate. That's why I said "at least 0.03%." It's been going up recently because of social inflation.

The auto insurance industry does not include $0 claims in the claim frequency. The number of umbrella claims filed is more than double the number of claims paid. A lot of claims settle within the limits of the primary policy.
oldfort
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Re: Umbrella liability - is it necessary?

Post by oldfort »

UALflyer wrote: Wed Nov 17, 2021 6:42 pm
oldfort wrote: Wed Nov 17, 2021 6:28 pm I don’t know what you mean by exposed income.
"Exposed income" is income that is exposed to judgment creditors, as opposed to the income stream that is statutorily protected, such as social security/SSI payments, disability payments, survivor's payments, etc...
The reason people file a Chapter 7 bankruptcy is to stop wage garnishment.
I would very respectfully suggest that you look up the Chapter 7 qualifications and requirements as well as its downsides, as things work very differently from the way you understand them to be.
Okay, so from my search here's what the ABI says about Chapter 7:

Fortunately, the bankruptcy code provides an equally powerful countermeasure. Once a bankruptcy petition is filed, the powerful “automatic stay” goes into effect. The automatic stay is an order of the bankruptcy court for creditors to cease collection efforts on a debt. Since wage garnishments are collection efforts, wage garnishments must cease. ...
The stay remains in effect until the court orders otherwise. Most debts are discharged, so the wage garnishment will cease permanently. If the debt is not dischargeable, such as recent tax obligations, the creditor can reinstitute a wage garnishment.

https://www.abi.org/feed-item/wage-garn ... bankruptcy
randomguy
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Re: Umbrella liability - is it necessary?

Post by randomguy »

azanon wrote: Tue Nov 16, 2021 6:29 pm
Whocares1000 wrote: Tue Nov 16, 2021 4:48 pm
azanon wrote: Tue Nov 16, 2021 8:12 am OP - probably not, provided you have healthy limits set on all of your primary insurance policies (like auto). In almost all cases, in a worst case scenario, an attorney would probably just try to go after whatever your main policy limit is.

I think anyone that thinks this is worth it should be playing the lottery too, since the chance of winning it and actually using an umbrella policy in a court judgement are roughly equivalent.

Don't anyone get me wrong - I'm actually boglehead and VERY low risk kind of person. But that should never been confused with an obsession for absolutely zero risk. Similar to retirement plans that aim for absolutely zero risk, the cost of getting that last percent or two of risk away is exponential. Now don't take that the wrong way, I'm not claiming an umbrella policy is expensive in an of itself, but I am saying it's expensive relative to the chance you'll use it (~0.0000x%).

Also, just fwiw, I do believe in the placebo effect. As it applies here, if it's going to make you feel a lot more comfortable to own an umbrella policy day-to-day, then it's probably worth the cost. But that's because it's worth it to you psychologically.
Do you buy Auto Insurance hoping to get into a vehicle accident every year? Do you buy homeowners insurance hoping that your house catches on fire every year? Certainly not. That is the same with any other type of insurance. You pay a small price (the premium) to protect from a larger loss (the peril). The premium is the sunk cost whether the event happens or not.
False analogy. You're far more likely to use those insurance policies. I've said from the very beginning in this thread to have base level homeowners and auto insurance, including those. And I'm not sure about your state, but it's illegal in my state to not have some auto insurance.
Same analogy. Why are you buying home insurance when the odds are you will not get back the money you put in? Why not roll the dice and enjoy all that extra money most of the time? The obvious answer is that you can't handle the downside (i.e making 100k 90% of the time and losing 500k 10% is a great gamble. But only if you can play a lot and have a big bankroll). Claim rate doesn't change the problem. I am holding 2 million dollars in liability despite knowing the odds of needing it low enough it will never pay off because if I happen to be in a car accident and cause that much damage, I want those people to be made as whole as possible AND I don't want to go broke.

The number I have never seen is what is a reasonable amount. There are a lot of claims in that 400k-1 million range but after that it seems to drop off pretty sharply and most of the cases are more commercial activities than personal or extreme negligence (i.e. drunk driving or shooting someone). The advice of matching liability to assts always seemed flawed to me. If I have 500k of assets and 500k of liability and they think they can get 2 million, why are they settling for 500k? Sure I am filing for bankruptcy after that 2 million dollar judgement but they are getting 1 million instead of 500k. Now if you have zero legal expsure you can skip the insurance but it is sort of a selfish move to pay for the damage you caused...
UALflyer
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Re: Umbrella liability - is it necessary?

Post by UALflyer »

oldfort wrote: Wed Nov 17, 2021 7:10 pm Okay, so from my search here's what the ABI says about Chapter 7:

Fortunately, the bankruptcy code provides an equally powerful countermeasure. Once a bankruptcy petition is filed, the powerful “automatic stay” goes into effect. The automatic stay is an order of the bankruptcy court for creditors to cease collection efforts on a debt. Since wage garnishments are collection efforts, wage garnishments must cease. ...
The stay remains in effect until the court orders otherwise.
The automatic stay has nothing whatsoever to do with the issue. As the term implies, a stay does not wipe out your obligations. It merely suspends the creditors' collection efforts to ensure that a bankruptcy case can be administered.

Here's a simple article: https://wallethub.com/edu/d/automatic-stay/25548
Most debts are discharged, so the wage garnishment will cease permanently.
Chapter 7, if you qualify for it, is a liquidation, which means that all your exposed assets are wiped out. Unless you qualify for an exemption, Chapter 7 has means testing, so that generally, 6 figure earners won't qualify for it. Even if they do, Chapter 13 or, for wealthier individuals, Chapter 11 can be preferable, as people generally want to try to keep some of their possessions.

Once again, there is no scenario where an individual with a nice taxable Vanguard account, other unprotected assets (a car, a house in a state that doesn't offer substantial protection for primary residences, etc...) and good income gets hit with an excess verdict, shrugs his shoulders, and gets to wipe out the judgment in bankruptcy while keeping all their assets and income.
Last edited by UALflyer on Thu Nov 18, 2021 2:04 pm, edited 1 time in total.
Grt2bOutdoors
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Re: Umbrella liability - is it necessary?

Post by Grt2bOutdoors »

Swimmer wrote: Fri Nov 05, 2021 11:32 am We have a 1M umbrella (Allstate), but it’s far from cheap. Our last premium was just short of $600. We have one vehicle, one golf cart, one home; no pet, pool, motorcycle, trampoline, etc.

We live in Florida and are old. Would this be the reason or should we start shopping around?
Shop around, nothing preventing you. I will tell you this, attorney's aren't cheap and $600 for months of legal exploration and going to court on your behalf is a "steal". Of course, the insurance companies know the likelihood of you ever making a claim against the policy is low and they price it accordingly but as you stated, you are in Florida, are older and likely drive. That may be a factor in deciding the rate class you are in or it may just be the rate they charge for Florida - its a bit of a black box when it comes to pricing risk. Shop- try Geico, State Farm or just visit a local independent insurance broker and see what quotes they can dig up for you.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Grt2bOutdoors
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Re: Umbrella liability - is it necessary?

Post by Grt2bOutdoors »

Sandtrap wrote: Wed Nov 17, 2021 9:53 am
stocknoob4111 wrote: Thu Nov 04, 2021 8:01 am I have a NW around $1.2M, unfortunately $800K of it is in my taxable brokerage which does not have any protections against lawsuits etc. Should I be considering getting an umbrella liability policy? I have not really thought about this up until now.

What are the major coverage gaps in these policies? How many of you have bought such a policy and is it really essentially for anyone of a certain net worth?
Contact your homeowners insurance or other insurance for an umbrella policy. Get quotes from others. You might find the costs are tiny for peace of mind and so forth. You have a lot to lose. . .so?

j :D
I'm reminded of the saying - penny wise, pound foolish. A 0.3% return on the taxable brokerage account would pay for a yearly peace of mind policy, that is a very small price to pay for having an operator (ahem! I meant attorney) standing by, by just calling that toll free number on his touch-tone keypad. :D
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Retired Bill
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Re: Umbrella liability - is it necessary?

Post by Retired Bill »

It is necessary. If some drunken or high on drugs idiot decides to illegally pass a vehicle and hits you head on and kills several of your family members and leaves you paralyzed for life from the neck down and after you have exhausted all of the medical benefits under your personal health insurance coverage (at one time 2 million was the cap on medical insurance benefits under most health insurance policies), who is going to pay the unpaid medical expenses when you have been in intensive care for 6 months or a year or longer, and then lifetime care for you since you end up paralyzed from the neck down? And hopefully you won't have any minor children as surviving dependents at time of accident. Since that party who hit you most likely has no auto liability insurance and no assets, will be nothing to recovery on their policy. Then it comes down to the limits on your policy for that un-insured/under-insured motorist. Your only recourse is the coverage you have under the un-insured/under-insured your auto insurance provides. You end up in a law suit against your own insurance company with one of those personal injury lawyers as your legal counsel. There is just too many drivers that have no auto liability or minimum amounts, and the numbers keep rising. Isn't no-fault insurance great. The responsible drivers end up paying for the actions of others that carry little or no liability coverage.
oldfort
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Re: Umbrella liability - is it necessary?

Post by oldfort »

UALflyer wrote: Wed Nov 17, 2021 7:29 pm
Most debts are discharged, so the wage garnishment will cease permanently.
Chapter 7, if you qualify for it, is a liquidation, which means that all your exposed assets are wiped out. Unless you qualify for an exemption, Chapter 7 has means testing, so that generally, 6 figure earners won't qualify for it. Even if they do, a Chapter 13 or, for wealthier individuals, Chapter 11 can be more advantageous, as people generally want to try to keep some of their possessions.

Once again, there is no scenario where an individual with a nice taxable Vanguard account, other unprotected assets (a car, a house in a state that doesn't offer substantial protection for primary residences, etc...) and good income gets hit with an excess verdict, shrugs his shoulders, and gets to wipe out the judgment in bankruptcy while keeping all their assets and income.
Chapter 7 doesn't always require means testing and to imply it does, is incorrect. It's possible to qualify for Chapter 7, regardless of your income or assets depending on the types of debt. A liability verdict resulting from an auto accident would not be a consumer debt.
boglerdude
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Re: Umbrella liability - is it necessary?

Post by boglerdude »

> The number I have never seen is what is a reasonable amount

It's never happened, that a driver (not guilty of foreseeable negligence) had their 1M settlement offer rejected, then lost at trial and had assets seized. So, 1M umbrella + underlying is enough.
UALflyer
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Re: Umbrella liability - is it necessary?

Post by UALflyer »

boglerdude wrote: Thu Nov 18, 2021 2:43 am > The number I have never seen is what is a reasonable amount

It's never happened, that a driver (not guilty of foreseeable negligence) had their 1M settlement offer rejected, then lost at trial and had assets seized. So, 1M umbrella + underlying is enough.
Not only is this statement incorrect, but even the concept that you're describing works very differently. In a negligence based lawsuit, foreseeability/proximate cause is an essential element of the claim. So, if foreseeability/proximate cause does not exist, then your insurance limits don't make any difference, as the plaintiff loses.

To put it differently, in a negligence based lawsuit, if the plaintiff wins, by definition the foreseeability element of the claim has been satisfied.
UALflyer
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Re: Umbrella liability - is it necessary?

Post by UALflyer »

oldfort wrote: Wed Nov 17, 2021 9:10 pm
UALflyer wrote: Wed Nov 17, 2021 7:29 pm
Most debts are discharged, so the wage garnishment will cease permanently.
Chapter 7, if you qualify for it, is a liquidation, which means that all your exposed assets are wiped out. Unless you qualify for an exemption, Chapter 7 has means testing, so that generally, 6 figure earners won't qualify for it. Even if they do, a Chapter 13 or, for wealthier individuals, Chapter 11 can be more advantageous, as people generally want to try to keep some of their possessions.

Once again, there is no scenario where an individual with a nice taxable Vanguard account, other unprotected assets (a car, a house in a state that doesn't offer substantial protection for primary residences, etc...) and good income gets hit with an excess verdict, shrugs his shoulders, and gets to wipe out the judgment in bankruptcy while keeping all their assets and income.
Chapter 7 doesn't always require means testing and to imply it does, is incorrect. It's possible to qualify for Chapter 7, regardless of your income or assets depending on the types of debt. A liability verdict resulting from an auto accident would not be a consumer debt.
I would very respectfully suggest that you re-read the posts to which you're replying, as your response completely misstates the point made in the post.

Yes, there is a business debt exception to the means testing under Chapter 7, but you have to qualify for it and, even if you do, you remain subject to the other requirements, such as the good faith requirement. Even if you do qualify for Chapter 7, as I already pointed out above, Chapter 13 or, for wealthier individuals, Chapter 11, can be preferable, as people generally want to try to keep some of their possessions. Here's a simple article that summarizes a case where good faith came into play, and there are many other ones out there (https://www.abi.org/feed-item/the-busin ... means-test):

"Just because a debtor can by-pass the means test does not mean that a debtor can use it as a loophole to escape other good faith requirements.

In a Michigan decision from earlier this year, the bankruptcy court addressed a situation involving husband and wife debtors whose debts were genuinely primarily business debts. They had over six million dollars of unsecured debts from failed real estate investments.

However, both debtors were doctors whose budget showed that they were living on $42,000 of monthly expenses – what the court described as a very lavish and extravagant lifestyle. They each drove a Mercedes Benz and had a BMW in the garage.

The court commented that even though the debtors did not fail the means test, they nevertheless lacked good faith because they could have easily adjusted their budget while still maintaining a nice lifestyle, and paid their creditors a significant dividend through a Chapter 11 plan. In re Rahim and Abdulhussain, No.l 10-57557 (Bankr.E.D.Mich 12/16/10)." In fact, the court specifically quoted a Sixth Circuit case that mentioned “Among the factors to be considered in deciding whether a debtor is needy is his ability to repay his debts out of future earnings.... That factor alone may be sufficient to warrant dismissal.” 886 F.2d at 126"

As many of us have explained, there is no scenario where an individual with a nice taxable Vanguard account, other unprotected assets (a car, a house in a state that doesn't offer substantial protection for primary residences, etc...) and good income gets hit with an excess verdict, shrugs his shoulders, and gets to wipe out the judgment in bankruptcy while keeping all their assets and income.
Last edited by UALflyer on Thu Nov 18, 2021 2:03 pm, edited 2 times in total.
jbmitt
Posts: 623
Joined: Mon Jul 14, 2008 1:00 am

Re: Umbrella liability - is it necessary?

Post by jbmitt »

UALflyer wrote: Thu Nov 18, 2021 10:04 am
boglerdude wrote: Thu Nov 18, 2021 2:43 am > The number I have never seen is what is a reasonable amount

It's never happened, that a driver (not guilty of foreseeable negligence) had their 1M settlement offer rejected, then lost at trial and had assets seized. So, 1M umbrella + underlying is enough.
Not only is this statement incorrect, but even the concept that you're describing works very differently. In a negligence based lawsuit, foreseeability/proximate cause is an essential element of the claim. So, if foreseeability/proximate cause does not exist, then your insurance limits don't make any difference, as the plaintiff loses.

To put it differently, in a negligence based lawsuit, if the plaintiff wins, by definition the foreseeability element of the claim has been satisfied.
UALFlyer is correct. In a prior career I handled these kinds of losses. There were situations with UM/UIM claims where we would not consent to a limits settlement from the at fault insurer. We had identified that there were collectible assets in excess of the insurance limits. Procedurally, we would have to substitute funds for the amount of the limits offer and then the insurer and their client would remain in litigation until a settlement was reached.

Typically the at fault party and their insurer would have to buy their way out by offering money in excess of their coverage. That generally meant contributions from the at fault party, concessions from the insurer to contribute to a global settlement in lieu of incurring continued defense costs. We would then determine our exposure after offsetting what had already been paid.

There is also a risk to the insurer in the event of an excess verdict. There are instances where they are held responsible beyond the policy limits for the verdict because they are presumed to have the resources to pay it compared to the insured. It can also be done for punitive reasons.
oldfort
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Re: Umbrella liability - is it necessary?

Post by oldfort »

UALflyer wrote: Thu Nov 18, 2021 10:16 am I would very respectfully suggest that you re-read the posts to which you're replying, as your response completely misstates the point made in the post.

Yes, there is a business debt exception to the means testing under Chapter 7, but you have to qualify for it and, even if you do, you remain subject to the other requirements, such as the good faith requirement. Even if you do qualify for Chapter 7, as I already pointed out above, Chapter 13 or, for wealthier individuals, Chapter 11, can be preferable, as people generally want to try to keep some of their possessions. Here's a simple article that summarizes a case where good faith came into play, and there are many other ones out there (https://www.abi.org/feed-item/the-busin ... means-test):

"Just because a debtor can by-pass the means test does not mean that a debtor can use it as a loophole to escape other good faith requirements.

In a Michigan decision from earlier this year, the bankruptcy court addressed a situation involving husband and wife debtors whose debts were genuinely primarily business debts. They had over six million dollars of unsecured debts from failed real estate investments.

However, both debtors were doctors whose budget showed that they were living on $42,000 of monthly expenses – what the court described as a very lavish and extravagant lifestyle. They each drove a Mercedes Benz and had a BMW in the garage.

The court commented that even though the debtors did not fail the means test, they nevertheless lacked good faith because they could have easily adjusted their budget while still maintaining a nice lifestyle, and paid their creditors a significant dividend through a Chapter 11 plan. In re Rahim and Abdulhussain, No.l 10-57557 (Bankr.E.D.Mich 12/16/10)." In fact, the court specifically quoted a Sixth Circuit case that mentioned “Among the factors to be considered in deciding whether a debtor is needy is his ability to repay his debts out of future earnings.... That factor alone may be sufficient to warrant dismissal.” 886 F.2d at 126"
Fascinating, it appears there could be a circuit split on this issue:

Circuit Courts are split on whether “bad faith” constitutes cause for dismissal or conversion of a non-consumer Chapter 7 bankruptcy. See, In re Adolph, 441 B.R. 909 (Bankr. N.D. Ill. 2011) (holding § 707(a) does not allow dismissal for bad faith; the courts are divided on the issue, with the Third Circuit in Perlin and Tamecki and the Sixth Circuit in Zick holding bad faith can support a § 707(a) dismissal while the Eighth Circuit in Huckfeldt and Ninth Circuit in Sherman and Padilla disagree). The split arises out of the following competing statutory interpretation by the courts:
https://www.furrcohen.com/wp-content/up ... -Faith.pdf
Pete3
Posts: 208
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Re: Umbrella liability - is it necessary?

Post by Pete3 »

At the risk of jumping into a spirited thread, based on what I am reading what are the thoughts about stopping umbrella insurance once the income earners are retired - if I read the thread correctly then if you have no income stream (except for SS) and limited assets that are exposed (e.g. excluding primary home and retirement accounts) the risk is limited to those unprotected assets.

So if you could tolerate the complete loss of those at-risk assets in a worst-case scenario it might be worth it to cancel the umbrella insurance at that time since the future wage garnishment concern is gone?
randomguy
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Re: Umbrella liability - is it necessary?

Post by randomguy »

Pete3 wrote: Fri Nov 19, 2021 9:32 am At the risk of jumping into a spirited thread, based on what I am reading what are the thoughts about stopping umbrella insurance once the income earners are retired - if I read the thread correctly then if you have no income stream (except for SS) and limited assets that are exposed (e.g. excluding primary home and retirement accounts) the risk is limited to those unprotected assets.

So if you could tolerate the complete loss of those at-risk assets in a worst-case scenario it might be worth it to cancel the umbrella insurance at that time since the future wage garnishment concern is gone?
How would you feel about crippling someone for life, causing 900k of damage, and not paying because of a legally you don't have to? I don't expect you to answer but it is important to remember that if you get some large legal judgement against you, odds are it is because you caused something bad to happen. Yes I am aware of the robbers suing the homeowner cases and the like but those are the exceptions. The "normal" case is you hit someone and they end up with a half million in damages from your screw up....

Personally even if I didn't care about others, I would keep paying the 200/year just to have the insurance company defend me. Even if ended up having to pay nothing, I expect I would be hit with a large legal bill and a total time sink of dealing with it.
ncbill
Posts: 1228
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Location: Western NC

Re: Umbrella liability - is it necessary?

Post by ncbill »

randomguy wrote: Fri Nov 19, 2021 9:47 am
Pete3 wrote: Fri Nov 19, 2021 9:32 am At the risk of jumping into a spirited thread, based on what I am reading what are the thoughts about stopping umbrella insurance once the income earners are retired - if I read the thread correctly then if you have no income stream (except for SS) and limited assets that are exposed (e.g. excluding primary home and retirement accounts) the risk is limited to those unprotected assets.

So if you could tolerate the complete loss of those at-risk assets in a worst-case scenario it might be worth it to cancel the umbrella insurance at that time since the future wage garnishment concern is gone?
How would you feel about crippling someone for life, causing 900k of damage, and not paying because of a legally you don't have to? I don't expect you to answer but it is important to remember that if you get some large legal judgement against you, odds are it is because you caused something bad to happen. Yes I am aware of the robbers suing the homeowner cases and the like but those are the exceptions. The "normal" case is you hit someone and they end up with a half million in damages from your screw up....

Personally even if I didn't care about others, I would keep paying the 200/year just to have the insurance company defend me. Even if ended up having to pay nothing, I expect I would be hit with a large legal bill and a total time sink of dealing with it.
Yep, I added umbrella when my oldest kid started driving at age 16 (only time-based penalty here: 3 years regardless of if you start driving at age 16 or age 21)

Mostly because I knew one guy whose younger brother 'borrowed' their car, ran a stop sign while simply not paying attention (i.e no DUI issues) & so permanently crippled the driver of the other vehicle they hit.

Don't make the mistake of thinking you or your family member couldn't do the same.
ncbill
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Joined: Sun Jul 06, 2008 4:03 pm
Location: Western NC

Re: Umbrella liability - is it necessary?

Post by ncbill »

UALflyer wrote: Thu Nov 18, 2021 10:16 am
oldfort wrote: Wed Nov 17, 2021 9:10 pm
UALflyer wrote: Wed Nov 17, 2021 7:29 pm
Most debts are discharged, so the wage garnishment will cease permanently.
Chapter 7, if you qualify for it, is a liquidation, which means that all your exposed assets are wiped out. Unless you qualify for an exemption, Chapter 7 has means testing, so that generally, 6 figure earners won't qualify for it. Even if they do, a Chapter 13 or, for wealthier individuals, Chapter 11 can be more advantageous, as people generally want to try to keep some of their possessions.

Once again, there is no scenario where an individual with a nice taxable Vanguard account, other unprotected assets (a car, a house in a state that doesn't offer substantial protection for primary residences, etc...) and good income gets hit with an excess verdict, shrugs his shoulders, and gets to wipe out the judgment in bankruptcy while keeping all their assets and income.
Chapter 7 doesn't always require means testing and to imply it does, is incorrect. It's possible to qualify for Chapter 7, regardless of your income or assets depending on the types of debt. A liability verdict resulting from an auto accident would not be a consumer debt.
I would very respectfully suggest that you re-read the posts to which you're replying, as your response completely misstates the point made in the post.

Yes, there is a business debt exception to the means testing under Chapter 7, but you have to qualify for it and, even if you do, you remain subject to the other requirements, such as the good faith requirement. Even if you do qualify for Chapter 7, as I already pointed out above, Chapter 13 or, for wealthier individuals, Chapter 11, can be preferable, as people generally want to try to keep some of their possessions. Here's a simple article that summarizes a case where good faith came into play, and there are many other ones out there (https://www.abi.org/feed-item/the-busin ... means-test):

"Just because a debtor can by-pass the means test does not mean that a debtor can use it as a loophole to escape other good faith requirements.

In a Michigan decision from earlier this year, the bankruptcy court addressed a situation involving husband and wife debtors whose debts were genuinely primarily business debts. They had over six million dollars of unsecured debts from failed real estate investments.

However, both debtors were doctors whose budget showed that they were living on $42,000 of monthly expenses – what the court described as a very lavish and extravagant lifestyle. They each drove a Mercedes Benz and had a BMW in the garage.

The court commented that even though the debtors did not fail the means test, they nevertheless lacked good faith because they could have easily adjusted their budget while still maintaining a nice lifestyle, and paid their creditors a significant dividend through a Chapter 11 plan. In re Rahim and Abdulhussain, No.l 10-57557 (Bankr.E.D.Mich 12/16/10)." In fact, the court specifically quoted a Sixth Circuit case that mentioned “Among the factors to be considered in deciding whether a debtor is needy is his ability to repay his debts out of future earnings.... That factor alone may be sufficient to warrant dismissal.” 886 F.2d at 126"

As many of us have explained, there is no scenario where an individual with a nice taxable Vanguard account, other unprotected assets (a car, a house in a state that doesn't offer substantial protection for primary residences, etc...) and good income gets hit with an excess verdict, shrugs his shoulders, and gets to wipe out the judgment in bankruptcy while keeping all their assets and income.
So going forward bankruptcy attorneys simply tell clients like the above to switch temporarily to lower-paying jobs (or volunteer) for a period of time until they judge a Chapter 7 filing can't be (successfully) challenged?

A significant, but temporary reduction in income seems a reasonable sacrifice in order to get out from under a large (7+ figure) excess judgment.
hudson
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Re: Umbrella liability - is it necessary?

Post by hudson »

sport wrote: Fri Nov 05, 2021 12:28 pm I always figure that if an insurance company can find an excuse not to pay, they won't pay. So, I try to err on the side of safety. Insurance companies are not your friend. Same thing with banks.
I agree. When there's a problem be nice but take no prisoners until they fix it.
Tuxedo
Posts: 34
Joined: Thu Dec 10, 2015 9:15 pm

Re: Umbrella liability - is it necessary?

Post by Tuxedo »

El Greco wrote: Thu Nov 04, 2021 10:13 am Fortunately, he had an Umbrella policy which supplied a battery of lawyers to defend him through the many hours of depositions and court appearances he had to make.
Are you sure it was not his auto insurance? If not his auto insurance, why not?
boglerdude
Posts: 928
Joined: Fri Jul 10, 2015 1:28 am

Re: Umbrella liability - is it necessary?

Post by boglerdude »

Basic auto pays your defense. And if you actually do seven-figure damage, you also hire your own lawyer to make sure your insurance offers the policy limit rather than risk trial.
User avatar
El Greco
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Re: Umbrella liability - is it necessary?

Post by El Greco »

Tuxedo wrote: Sat Nov 20, 2021 1:49 pm
El Greco wrote: Thu Nov 04, 2021 10:13 am Fortunately, he had an Umbrella policy which supplied a battery of lawyers to defend him through the many hours of depositions and court appearances he had to make.
Are you sure it was not his auto insurance? If not his auto insurance, why not?
Well, they elected to sue him for over a million dollars, so maybe he got the insurance company's "A" team. As he had his auto policy and umbrella policy with the same insurance company (this is typical) I'm not sure which side the lawyers came from. The point is, if the other side won they could have collected on his personal assets above and beyond the liability limits of his auto insurance. He didn't regret paying the $300 a year premium for the Umbrella coverage.
UALflyer
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Joined: Thu Jan 17, 2013 10:42 am

Re: Umbrella liability - is it necessary?

Post by UALflyer »

boglerdude wrote: Sun Nov 21, 2021 1:53 am Basic auto pays your defense.
Yes, but the more your insurance company stands to lose, the greater the defense effort will frequently be. So, larger exposures for the insurance company tend to justify more substantial defense efforts in the form of more experienced defense counsel, larger defense teams, accident investigators, experts, etc... Hence, if you are faced with a large liability lawsuit, large insurance policies can get you a better defense from the insurance company, which faces a larger loss.
afan
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Re: Umbrella liability - is it necessary?

Post by afan »

My friend the civil defense lawyer says the insurance companies look at the overall case to decide which lawyers to retain. If the facts are terrible, you don't hire an expensive legal team to fight an unwinnable case. You settle the suit.
A case that requires higher level lawyering might be negotiating that settlement, providing there is something to negotiate. Or defending it when the case is legally complicated.
The insurance companies hire lawyers everyday. They predict the risk of a big loss and what it will take to manage the case. This is their business. They know what they are doing.

Although most liability arises from auto exposure, it is possible to be sued for something that your auto policy would not cover. For me, umbrella is easily worth it.
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SovereignInvestor
Posts: 607
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Re: Umbrella liability - is it necessary?

Post by SovereignInvestor »

sport wrote: Fri Nov 05, 2021 12:28 pm I always figure that if an insurance company can find an excuse not to pay, they won't pay. So, I try to err on the side of safety. Insurance companies are not your friend. Same thing with banks.
Subjective. If insurance companies weakly defended themselves and paid out claims generously the premiums would be sky high which is not friendly to consumers.

So either way people hate insurance companies.
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