Umbrella Insurance, Yay or Nay?

[Megatron]

I wanted to poll the MMM community on umbrella insurance. I know the basics but have not research it extensively. Do any one of you have an umbrella insurance on top of your current home / auto insurance? If so, how much are you insured and is that based on your net worth?

I'm looking into whether or not my wife and I should buy an umbrella insurance on top of our home / auto.

Any recommendations on umbrella insurance companies would be appreciated.

[Thegoblinchief]

I don't have it.

Any particular reason you think you should?

[Megatron]

My dad recently got into an auto accident which caused damages more than his auto insurance is liable for.
Then I started reading about all these case studies on why umbrella insurance is necessary.

My wife and I have a rental building and a sizable savings/retirement account. I just wanted to protect ourselves in case.

[MountainGal]

Insurance agent with 12.5 years experience here.

I personally don't have an umbrella policy.  However, I do recommend it to my clients with lots of assets in case of an accident and/or lawsuit.  There are some fellow humans out there who see people with "stuff" and decide they deserve said "stuff".

My agency offers products starting out at $200/year for $1,000,000 up to $5,000,000.

[GardenFun]

If you have significant savings (anything $250K+) and can swing the premiums (ours is roughly $150/yr for $1M), then get it.  I prefer this insurance over life insurance. 

Backstory:  Best friend's DH was sued due to a car/motorcycle accident.  Took 3 years to settle, tens of thousands of $ out of their pockets, and I can't even start to put a $ figure on the emotional stress it caused their family.  They had significant assets for their age and were even talking divorce in order to determine how to protect the assets.  An umbrella policy would have prevented all that headache. 

Caveat:  Your auto insurance may go up.  We had to choose the 250/500 individual/group coverage vs. the cheaper 100/300.  Prevents the umbrella from being used until absolutely necessary. 

[arebelspy]

Yes. 

I own multiple rental properties, and the extra coverage is well worth it for the peace of mind and small chance of losing lots due to my extra risk exposure.

If one has most of their assets in a primary (homesteaded) residence and retirement accounts, it may not be worth it.

[VirginiaBob]

The downside of umbrella insurance:

You sure as heck know that the lawyer of anyone suing you will know 2 things.

1. How much umbrella insurance you have.
2.  Your total assets outside this insurance.

[4alpacas]

Yes.  With our joint asset level (and living in a litigious state), we opted to have an umbrella policy.

[arebelspy]

The downside of umbrella insurance:

You sure as heck know that the lawyer of anyone suing you will know 2 things.

1. How much umbrella insurance you have.
2.  Your total assets outside this insurance.

Oh?  Is that a normal thing to find out via public information?  During discovery?

And if you don't have the insurance, don't they just find out #2, and you're even worse off?

[Spartana]

I have a million dollar liability policy (Umbrella insurance policy) as well as a basic homeowners and car insurance. It costs $180/year. While I don't have a big stash compared to most people here, my house in an expensive area is paid for and this (I hope) will give me extra coverage in case someone sues me for something that is beyond the coverage of my house and car insurance.  I figure the extra $15/month is worth it for an "just in case" situation that could wipe me out financially.  I have it bundled in with my home and auto policies thru State Farm.

[Eric]

Nah.  If I lose my umbrella or it breaks, I just buy a new one.  They're like $20.

*ba dum cha*

[iris lily]

Yes, we have it, it's cheap.

We don't over insure, and we self-insure for the little stuff, but this covers our stache. Gotta protect the 'stache.

The only downside that I could see was that we had to bring our house insurance and car insurance into one company. Prior to that we had two different companies handling them.

[Another Reader]

The nice thing about a large umbrella policy is that the insurance company is going to fight very hard to minimize the damages because most if not all of the damage award will come out of their pocket.  There's a reason these policies are relatively inexpensive.  There are very few cases where plaintiffs are awarded multiple millions in damages.  Most often, if there is a provable liability, the insurance company settles for far less than the policy limit.  There are guidelines for what's reasonable for various types of injuries, and judges will often reduce unreasonable jury findings.  The lawyers have a very good idea of what a case is "worth."

[dragoncar]

Yep, reminds me I may need to increase it.  I agree it's only for those with significant assets or earning potential.  Even before I had assets, I didn't want my wages garnished for the next decade.

[Thegoblinchief]

Hmm, maybe I should reconsider.

[Rube]

The downside of umbrella insurance:

You sure as heck know that the lawyer of anyone suing you will know 2 things.

1. How much umbrella insurance you have.
2.  Your total assets outside this insurance.

But you're insuring negligence, not intentional torts or strict liability situations.

Bottom line, your existence in the world involves potential risk. It's up to you to figure out how much risk and mitigate exposure. No offense to the insurance agents here but they are not attorneys. If you want to get a handle on your exposure, start with a personal injury attorney. They would probably give you some free advice over the phone.

[fa]

My umbrella policy is for $5,000,000.  I have the policy because of underage children and the fact that personal injury attorneys would see me as a high value target.  It is not a dirt cheap policy, but it helps me sleep at night.

Even if you have very few apparent means, an attorney would not need to put in a lot of effort to discover your mustachian stache.  Once your net worth is known, anything is fair game.  Still, I am considering dropping the policy when my kids are over 18.

[InsourceEverything]

I have it.    The $170 premium for $1million liability coverage seems reasonable to me, and protects against something that could completely wreck my Stache

Basically, I think that is what insurance is for.  Unlikely event that could be catastrophic

[b1gm1ke11]

I agree with arebelspy.  Getting an umbrella policy is a good idea if you've got significant assets not protected by homestead or in a retirement plan.  (Yay for Texas and Florida unlimited homestead!)   It's a cheap line of defense for your personal assets. 

[soccerluvof4]

I just recently had this conversation with a good friend of mine and stated many of the case supporting it as mentioned here. No he doesn't sell it but his case put me in the market to purchase a plan.

[VirginiaBob]

The downside of umbrella insurance:

You sure as heck know that the lawyer of anyone suing you will know 2 things.

1. How much umbrella insurance you have.
2.  Your total assets outside this insurance.

Oh?  Is that a normal thing to find out via public information?  During discovery?

And if you don't have the insurance, don't they just find out #2, and you're even worse off?

I'm really not familiar enough with that process to know for sure.  Was googling the issue and the book, "Moving at the Speed of Wealth" discusses  this.  Note that the author has been in legal hot water though for running a Ponzi scheme, so take that for what it is worth.

[SnackDog]

I'd recommend $1 million minimum for everyone, particularly if you operate a vehicle (car, boat, motorcycle, four-wheeler, snowmachine) or own property or a dog.  If your net worth is higher, then increase it.   Cars and properties are commonly involved in accidents which draw lawsuits.  In the US these typically involve unscrupulous lawyers who will sue for every nickel of pain and suffering.  If someone is seriously injured (e.g. lasting injuries) on your property or by your car, they will often sue for lost lifetime wages, etc.  Having at least the $1 million coverage means your insurance company will fight for you as it is a meaningful amount to them (as opposed to your $200,000 basic auto/property coverage which insurance may just pay without a fight and leave you on the hook for the rest of the lawsuit and damages).

I personally know at least a handful of people who have substantially lost their savings due to events for which they were under-insured.  It is your second biggest threat after divorce.

[js625]

it's so inexpensive I really can't see any reason not to have it if you have significant assets.  I think this is a cheap vs frugal type scenario...don't be cheap

[BeanCounter]

I agree with what others have stated above in support of umbrella coverage. We always had the highest home and auto policy you could buy ($500k liability I believe) and then when our assets topped $500k we added a $1M umbrella. When our assets top $1M we will increase that policy.
The cost really is minimal, about $230 (if you only have a home and cars) per year. It's worth the peace of mind. I want the isurance companies attorney's to fight for their assets.
I come from a long line of Mustachians and they all have umbrella policies as well.

[boarder42]

yeah but at what level of networth do you need it ... we are about to cross 300k at the end of this year if the market bounces back.  my auto liability covers 3/6/3 so why would i need an umbrella?

[BeanCounter]

yeah but at what level of networth do you need it ... we are about to cross 300k at the end of this year if the market bounces back.  my auto liability covers 3/6/3 so why would i need an umbrella?

You should increase your auto & home liability to the max, which is $250k each person/$500k each accident I think. Once your assets exceed that then you need to purchase umbrella insurance, and keep increasing your policy as your assets increase. That's the cheapest way to do it.

[NathanP]

Of course if you have a $1M umbrella policy and $1M in the bank what stops someone for suing for $2M?

I agree with everyone who mentions having high liability coverage ($250k+) for home and auto policies. I would also recommend having a high dollar umbrella policy for anyone who is a landlord or owns a business. These individuals have a higher risk of being sued than the average person. Keep in mind that when you buy an umbrella policy you are buying both the liability coverage and MORE IMPORTANTLY the lawyers to represent you. Think about how good your insurance provided representation is going to be when millions are on the line.

After saying all of that I admit that I do not have an umbrella policy. All of my net worth is in my IRA, 401k and house. In my state each of those are protected against ANY liability claims.

[arebelspy]

Yes, your umbrella should be based on expected potential liability, not net worth.

[Megatron]

yeah but at what level of networth do you need it ... we are about to cross 300k at the end of this year if the market bounces back.  my auto liability covers 3/6/3 so why would i need an umbrella?

You should increase your auto & home liability to the max, which is $250k each person/$500k each accident I think. Once your assets exceed that then you need to purchase umbrella insurance, and keep increasing your policy as your assets increase. That's the cheapest way to do it.

If you have an umbrella insurance, couldn't you minimize the liability of your home & auto? because the umbrella insurance would cover it?

[arebelspy]

yeah but at what level of networth do you need it ... we are about to cross 300k at the end of this year if the market bounces back.  my auto liability covers 3/6/3 so why would i need an umbrella?

You should increase your auto & home liability to the max, which is $250k each person/$500k each accident I think. Once your assets exceed that then you need to purchase umbrella insurance, and keep increasing your policy as your assets increase. That's the cheapest way to do it.

If you have an umbrella insurance, couldn't you minimize the liability of your home & auto? because the umbrella insurance would cover it?

The umbrella company typically requires a certain minimum level of coverage for those. I had to increase my auto insurance when I got my umbrella insurance, so make sure you factor in that cost.

[Megatron]

Yes, your umbrella should be based on expected potential liability, not net worth.

@ arebelspy, how much is your umbrella liability coverage? if you don't mind me asking.
our plan is to continue to increase our rental units in the near future.

[Cpa Cat]

We just got it. I had to adjust my auto to meet the minimum requirements of the umbrella insurance, but then my homeowners went down. All in, I think it cost $200/year for 1M.

My logic is this:
1. We have significant assets.
2. I have a profession that I think people may associate with money.
3. Together, these things increase the likelihood that someone will choose to sue us.
4. God forbid we're involved in a serious injury accident, I know that our insurance company is going to fight for the best possible settlement, even if that settlement exceeds the coverage of my basic insurance.

[thedayisbrave]

This just reminded me... and I got it set up in an 11-mintute phone call. Thanks guys.

[Bob W]

You definitely need umbrella insurance as do most MMM readers with over 100K in assets.  Think of it as very cheap portfolio insurance.   You should also consider LTCI if you plan on retiring with less than 8K per month in income per person.   Almost no one will ever use their umbrella policy.  Almost everyone will use LTCI.

Also,  your real estate assets should be in very separate LLCs for asset protection.  Lawyers love to sue folks with assets and deep pockets.

See the target on your back?

[dragoncar]

yeah but at what level of networth do you need it ... we are about to cross 300k at the end of this year if the market bounces back.  my auto liability covers 3/6/3 so why would i need an umbrella?

You should increase your auto & home liability to the max, which is $250k each person/$500k each accident I think. Once your assets exceed that then you need to purchase umbrella insurance, and keep increasing your policy as your assets increase. That's the cheapest way to do it.

If you have an umbrella insurance, couldn't you minimize the liability of your home & auto? because the umbrella insurance would cover it?

The umbrella company typically requires a certain minimum level of coverage for those. I had to increase my auto insurance when I got my umbrella insurance, so make sure you factor in that cost.

The umbrella minimums were less than my previous limits so I ended up lowering those to the minimum.  Factor in multi-line discount and the net premium was miniscule.   Adding my wife was free.

[BeanCounter]

My logic is this:
1. We have significant assets.
2. I have a profession that I think people may associate with money.
3. Together, these things increase the likelihood that someone will choose to sue us.
4. God forbid we're involved in a serious injury accident, I know that our insurance company is going to fight for the best possible settlement, even if that settlement exceeds the coverage of my basic insurance.

Exactly!!!!

[hdatontodo]

Any specific insurance companies to check out for Umbrella Insurance? USAA is an option for me. $546.21 annual premium

[bogart]

We have $1 mil for reasons others have stated.  I know ours does not cover any kind of commercial activity whatsoever, so anyone taking one out (or reviewing coverage) who uses it because of rental properties or whatever should, obviously, be sure they're included ...

[merula]

Insurance underwriter here. I'm on the side of don't buy the umbrella unless you've got a compelling reason.

Umbrella premiums are cheap because the loss ratios are low. Yeah, we'll pay multi-million-dollar losses, but overall the ratio of money out to money in is in our favor. Umbrellas are one of the most profitable lines of insurance.

VirginiaBob is absolutely right that any attorney will know what they can potentially get. That information comes out in discovery. My personal view is that having an umbrella makes you a bigger target.

If you think you have enough assets to justify an umbrella, do some more analysis to find out what could *actually* be taken in the event of a suit. Most states have a homestead exemption to protect your primary residence; find out what the terms are for you. Under ERISA, 401ks and defined benefit plans are protected from all forms of creditor judgement. IRA protection varies by state but can be unlimited. (This can also be very low. My state is something like $75k, indexed for inflation.)

Reasons to get an umbrella (IMHO): Dogs, trampolines, vacant land, youthful drivers, professions with a history of being held personally liable for professional torts.

If you really feel that you have enough exposure to justify an umbrella, or you're willing to pay for it to sleep better at night, check into raising your deductibles at the same time. Going from $500 to $5,000 on your homeowners policy would easily pay for the umbrella. And you can afford a high deductible with all those assets you're protecting.

Final thought: if you ever outsource housework or home repairs, get proof of insurance.

[arebelspy]

Yes, your umbrella should be based on expected potential liability, not net worth.

@ arebelspy, how much is your umbrella liability coverage? if you don't mind me asking.
our plan is to continue to increase our rental units in the near future.

Multiple millions.

[GoldenStache]

Great topic to read over lunch.  I just signed up.

I had to increase my auto and home owners insurance to get it. - Total increase of about $15 a month
(WOW.. I only had 20K in damages for auto.. not nearly enough for my area)

Umbrella @ $1m is $15 a month.
 
Total increase in insurance costs about $360 a year..  (Really needed the auto increase)

Deciding factor... Taxable accounts..   

[arebelspy]

Glad to see so many people assessing where they're at and deciding it's worth it.  Must be a lot of people doing pretty well.. :)

[dragoncar]

Insurance underwriter here. I'm on the side of don't buy the umbrella unless you've got a compelling reason.

Umbrella premiums are cheap because the loss ratios are low. Yeah, we'll pay multi-million-dollar losses, but overall the ratio of money out to money in is in our favor. Umbrellas are one of the most profitable lines of insurance.

VirginiaBob is absolutely right that any attorney will know what they can potentially get. That information comes out in discovery. My personal view is that having an umbrella makes you a bigger target.

If you think you have enough assets to justify an umbrella, do some more analysis to find out what could *actually* be taken in the event of a suit. Most states have a homestead exemption to protect your primary residence; find out what the terms are for you. Under ERISA, 401ks and defined benefit plans are protected from all forms of creditor judgement. IRA protection varies by state but can be unlimited. (This can also be very low. My state is something like $75k, indexed for inflation.)

Reasons to get an umbrella (IMHO): Dogs, trampolines, vacant land, youthful drivers, professions with a history of being held personally liable for professional torts.

If you really feel that you have enough exposure to justify an umbrella, or you're willing to pay for it to sleep better at night, check into raising your deductibles at the same time. Going from $500 to $5,000 on your homeowners policy would easily pay for the umbrella. And you can afford a high deductible with all those assets you're protecting.

Final thought: if you ever outsource housework or home repairs, get proof of insurance.

Well CA has an exemption of like $150k, so that's not going to cut it for me.  Obviously insurance companies make money on umbrella -- that's true of any insurance!  But it's exactly the kind of irrecoverable loss that I want to insure against.  If one of my coworkers trips on my stairs and can't work for the next 30 years, their loss will validly be in the millions.  Even if I could somehow get out of compensating them I wouldn't want to.

Any specific insurance companies to check out for Umbrella Insurance? USAA is an option for me. $546.21 annual premium

I have Geico, but I think you just need to shop the major ones - Travelers, Liberty Mutual, All State, etc. -- in my experience the "best" carrier is highly variable based on individual circumstances.

[merula]

Any specific insurance companies to check out for Umbrella Insurance? USAA is an option for me. $546.21 annual premium

Make sure it's a carrier rated A or better by AM Best (http://www.ambest.com/).

Well CA has an exemption of like $150k, so that's not going to cut it for me.  Obviously insurance companies make money on umbrella -- that's true of any insurance!  But it's exactly the kind of irrecoverable loss that I want to insure against.  If one of my coworkers trips on my stairs and can't work for the next 30 years, their loss will validly be in the millions.  Even if I could somehow get out of compensating them I wouldn't want to.

I see your point, though I disagree. For the sake of argument, what if you trip on your coworker's stairs? Would you take them for everything you might have earned until 65, regardless of their negligence?

I do commend you for knowing your state's limits and factoring that into your decision.

[seattlecyclone]

I see your point, though I disagree. For the sake of argument, what if you trip on your coworker's stairs? Would you take them for everything you might have earned until 65, regardless of their negligence?

Would I personally sue a friend or coworker if I tripped on their stairs and injured myself to the point of disability? Probably not. There would have to be something seriously wrong with the stairs (and likely to have been known by the coworker) before I would even consider it. However, nothing is forcing my disability insurance company from exercising that type of restraint. If they think they can recoup some of their losses by initiating a lawsuit, they'll do it.

As arebelspy mentioned, the amount of umbrella coverage you buy shouldn't depend on your net worth. You should take a look at your asset level to determine whether to buy the insurance in the first place. Do you have many assets in a form that could be taken in a lawsuit, enough that it would take you an uncomfortably long time to recover from the loss? If so, you should consider buying a policy to protect yourself from that risk.

Once you have decided to buy the insurance, the amount of assets you have no longer matters. Insurance companies tend to say you should buy insurance of an equivalent value to your assets. They're promoting a common misconception that a $1 million umbrella policy "protects" $1 million of assets, ensuring that you would end up with $1 million left no matter what happens in court. This is false. If you have a $1 million umbrella policy and a court determines you're liable for more than $1 million, you're going to have to pay the difference out of your assets (subject to exemptions for homestead, retirement accounts, etc.). What you actually need to do is determine the highest amount you're likely to be found liable for (I have no idea how to determine this number), and buy that much insurance.

[giggles]

My google-fu is failing, I am trying to find what if any assets are protected in NJ, but I must not be using the right terms.  Help?

[Numbers Man]

This is one of the better threads that I've read in awhile. The homestead Exemption in AZ protects up to $150k in home equity (excluding mortgage lenders) only if you file for bankruptcy protection. So why go through the hassle. Just get the Umbrella policy. I have to check to see what I pay, I might be getting hosed from one of the major insurance companies. It's probably time to start sending out some requests for quotes for all of my insurance needs. What's that saying? Let sleeping dogs lie.

[thedayisbrave]

I've gone back and forth on this for a while, but yeah.. there are so many ways of people finding out your NW nowadays, that I'd rather someone find out and know I'm adequately insured rather than find out and know that I don't have adequate insurance.  Based on what I've read, NC is not very friendly exemption wise (only $35K home equity or $60K if your spouse is deceased).

Now for those who hold their properties in an LLC, do you have corporate umbrella insurance for that? Or just a personal policy?

[Rube]

when you buy an umbrella policy you are buying both the liability coverage and MORE IMPORTANTLY the lawyers to represent you. Think about how good your insurance provided representation is going to be when millions are on the line.

Boy that would be nice but isn't necessarily the case. The insurance company's attorneys will work diligently to make sure they don't have to pay anything which may or may not fall in line with your legal issue. I don't see anything in my policy that says they're representing me.

Those of you that think an umbrella policy is a target on your back, don't forget damages still have to be proven. It's not like breaking into a house and the finding jewels you didn't know were in the house.

Also, the scary part of personal liability is not losing assets to a judgment or settlement but losing future assets. e.g. wage garnishment

[dragoncar]

when you buy an umbrella policy you are buying both the liability coverage and MORE IMPORTANTLY the lawyers to represent you. Think about how good your insurance provided representation is going to be when millions are on the line.

Boy that would be nice but isn't necessarily the case. The insurance company's attorneys will work diligently to make sure they don't have to pay anything which may or may not fall in line with your legal issue. I don't see anything in my policy that says they're representing me.

Those of you that think an umbrella policy is a target on your back, don't forget damages still have to be proven. It's not like breaking into a house and the finding jewels you didn't know were in the house.

Also, the scary part of personal liability is not losing assets to a judgment or settlement but losing future assets. e.g. wage garnishment

It's called "duty to defend" and I'm pretty sure it's in every policy.