Author Topic: buy umbrella insurance?  (Read 13045 times)

willfire

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buy umbrella insurance?
« on: November 30, 2017, 11:58:47 AM »
hi,

been lurking for a few months, first post here.

been working hard and a disciplined saver for the past 10, 15 years.  Found MMM a few months ago.  As my NW starts to get a little bigger, I'm starting to wonder if an umbrella insurance is in order.  Just got an online quote from geico, about $200/yr, seems like a good deal.  dont know much about umbrella ins, only that they're good to have.  Are they only good for liability/law suits?  any caveat?

my stats:

investment(pretax and after-tax): 640k
house: 20k left on mortgage.  worth about 400k.  near L.A.
two beater vehicles, worth nothing.   liability ins. coverage: $500,000 per person/$750,000 per occurrence
currently only two adult drivers (me and wife), will probably add 17 yr daughter as a new driver sometime in 2018.

any comments/suggestions are appreciated. thx.

« Last Edit: November 30, 2017, 12:05:55 PM by willfire »

tarheeldan

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Re: buy umbrella insurance?
« Reply #1 on: November 30, 2017, 12:16:26 PM »
Curious to see what others have to say!

I just wanted to note that GEICO has a little explainer about what's covered:
https://www.geico.com/information/aboutinsurance/umbrella/

And also that my umbrella policy with GEICO is $149/yr for $1m liability limit. I did reject un/under-insured motorists coverage.

Counting_Down

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Re: buy umbrella insurance?
« Reply #2 on: November 30, 2017, 02:04:40 PM »
We have a 1MM umbrella policy that we'll probably bump up the next year when our investments exceed 1MM.  We carry one because it takes years of discipline and hard work to save, and one accident with a litigious person to take it all from you. 

A friend of ours got hit on a bike by a driver a few months ago, the impact broke her hip.  No one will take her case against the distracted driver who hit her because "neither party has enough money to be worth it".  We have enough to be "worth it" - regardless of whether we're at fault.  To insure ourselves at $200/yr for the next 60 years is peace of mind that I value more than $12,000.  Others may not agree, but its something we've decided is worth it to us.

We're with Amica and our policy was $175.

Edit: yes, it's personal liability insurance. Covers on top of limits of personal liability on home and auto.
« Last Edit: November 30, 2017, 02:06:25 PM by Counting_Down »

seattlecyclone

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Re: buy umbrella insurance?
« Reply #3 on: November 30, 2017, 02:29:38 PM »
We have a 1MM umbrella policy that we'll probably bump up the next year when our investments exceed 1MM.

Why wait? I worry that you might have a common misconception about what a $1 million umbrella insurance policy does. If you're the defendant in a lawsuit, it will pay the first $1 million that you would otherwise owe. That's all. It doesn't "protect" the first $1 million of your assets and pay out everything you might owe beyond that. If you owe $2 million and you have a $1 million policy you're still on the hook for $1 million.

Clean Shaven

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Re: buy umbrella insurance?
« Reply #4 on: November 30, 2017, 02:38:39 PM »
We have a 1MM umbrella policy that we'll probably bump up the next year when our investments exceed 1MM.

Why wait? I worry that you might have a common misconception about what a $1 million umbrella insurance policy does. If you're the defendant in a lawsuit, it will pay the first $1 million that you would otherwise owe. That's all. It doesn't "protect" the first $1 million of your assets and pay out everything you might owe beyond that. If you owe $2 million and you have a $1 million policy you're still on the hook for $1 million.

Actually, the $1MM umbrella only pays after the primary layer is exhausted (absent some sort of drop-down).  Umbrellas will require a large primary layer in order to be written -- for example, a 300/500 primary auto policy is typical before a 1MM umbrella can be purchased.  So, in the event that Counting Down causes a massive accident injuring one person, CD would have $1.3MM of coverage.
 The insurer will assess exposure and, in all likelihood, try to settle within limits.

CD also may have homestead protection available to protect CD's primary residence against execution, up to a certain level of equity.  This depends on state law.

For those who want to purchase umbrella policies greater than $1MM, the higher levels get progressively less expensive.  This is because payouts at those levels are rare on personal or homeowner claims.

seattlecyclone

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Re: buy umbrella insurance?
« Reply #5 on: November 30, 2017, 04:03:21 PM »
We have a 1MM umbrella policy that we'll probably bump up the next year when our investments exceed 1MM.

Why wait? I worry that you might have a common misconception about what a $1 million umbrella insurance policy does. If you're the defendant in a lawsuit, it will pay the first $1 million that you would otherwise owe. That's all. It doesn't "protect" the first $1 million of your assets and pay out everything you might owe beyond that. If you owe $2 million and you have a $1 million policy you're still on the hook for $1 million.

Actually, the $1MM umbrella only pays after the primary layer is exhausted (absent some sort of drop-down).  Umbrellas will require a large primary layer in order to be written -- for example, a 300/500 primary auto policy is typical before a 1MM umbrella can be purchased.  So, in the event that Counting Down causes a massive accident injuring one person, CD would have $1.3MM of coverage.
 The insurer will assess exposure and, in all likelihood, try to settle within limits.

CD also may have homestead protection available to protect CD's primary residence against execution, up to a certain level of equity.  This depends on state law.

For those who want to purchase umbrella policies greater than $1MM, the higher levels get progressively less expensive.  This is because payouts at those levels are rare on personal or homeowner claims.

I have a $2 million umbrella policy. The way my policy works is it relies on the auto/homeowners for a certain amount, as you say. It doesn't add an additional $2 million to that, it instead insures up to $2 million total after both insurances are used. Different policies could be different though. Agreed that the price to add another $1 million to the policy is inexpensive because the risk isn't very great, which is why I did it. I'd rather pay an extra few bucks a month to not have to declare bankruptcy in the unlikely event where I'm responsible for more than $1 million but less than $2 million worth of damage.

yachi

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Re: buy umbrella insurance?
« Reply #6 on: November 30, 2017, 04:14:29 PM »
OP: Also lookup what you save by cutting your auto policy to Geico's minimum requirement for the umbrella policy:
a minimum bodily injury limit of $300,000/$300,000 and a property damage limit of $100,000 on your auto policy

with your policy of 500K/750K you might have substantial savings moving to the minimum and adding the umbrella to it.
There's no use carrying more on the underlying policies than the minimum required by the umbrella insurer.  While it's true that you're on the hook for settlements past your insured levels, your $1M policy holder has a very large incentive to provide the very best lawyers for whatever unfortunate situation you would find yourself in.

Brother Esau

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Re: buy umbrella insurance?
« Reply #7 on: November 30, 2017, 05:15:29 PM »
We have a $1MM policy because as someone posted previously, we're "worth it". It's pretty affordable from USAA for the protection we get so.....Yes!

TempusFugit

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Re: buy umbrella insurance?
« Reply #8 on: November 30, 2017, 07:33:07 PM »
...your $1M policy holder has a very large incentive to provide the very best lawyers for whatever unfortunate situation you would find yourself in.

From other threads I've recently read, this is really a key factor in having a policy.  The insurance company will be highly motivated to defend the lawsuit using their lawyers.  So in a sense, you are paying for both the coverage amount toward any judgement as well as a good lawyer to defend against any judgement. 

dodojojo

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Re: buy umbrella insurance?
« Reply #9 on: November 30, 2017, 08:12:10 PM »
I'm interested in purchasing liability or umbrella insurance but do not own a home or a car. Therefore I do not have any insurance at all.  I have never had renter's insurance as there's almost zero value in my apartment--unless insurance covers sentimentality.

Is it possible to buy stand-alone umbrella and/or non-auto liability insurance?  A good one at that.  I've read that some umbrella insurance doesn't actually pay out for damages against the insurance owner but instead covers the cost of litigation.

nwhiker

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Re: buy umbrella insurance?
« Reply #10 on: November 30, 2017, 09:44:06 PM »
So first off note that 401(k) and in most states Roths are protected from judgments. If you are involved in a claim with a potentially the injured party is going to determine what your insurance limits are. If they believe that the damages might look at your assets but a search is primarily looking at property you own (home and autos). That being said I have handled claims involving both people with significant wealth and famous individuals. That being said I have been able to settle claims that were worth more than the policy because it takes a lot of work to get to the personal assets. First they have to try the case and get a judgment against you. Then they are responsible for collecting it. It is time consuming and could result in getting paid over time versus getting payment up front.

The umbrella policy will require certain home and auto limits. Unless your auto or homeowners policy does not cover the claim the umbrella policy will not defend you. They typically rely on the underlying insurance to defend the claim and they would pay damages if they exceed the other insurance. The one benefit of an umbrella policy is that it typically covers some claims that aren't typically covered.

frugaliknowit

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Re: buy umbrella insurance?
« Reply #11 on: December 01, 2017, 08:38:59 AM »
I'm interested in purchasing liability or umbrella insurance but do not own a home or a car. Therefore I do not have any insurance at all.  I have never had renter's insurance as there's almost zero value in my apartment--unless insurance covers sentimentality.

Is it possible to buy stand-alone umbrella and/or non-auto liability insurance?  A good one at that.  I've read that some umbrella insurance doesn't actually pay out for damages against the insurance owner but instead covers the cost of litigation.

Similarly, I own a home, have H/O insurance, but no car.  I've been lead to believe I need to have auto insurance to get an umbrella policy...?

EarthSurfer

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Re: buy umbrella insurance?
« Reply #12 on: December 02, 2017, 05:11:23 AM »
I'm interested in purchasing liability or umbrella insurance but do not own a home or a car. Therefore I do not have any insurance at all.  I have never had renter's insurance as there's almost zero value in my apartment--unless insurance covers sentimentality.

Is it possible to buy stand-alone umbrella and/or non-auto liability insurance?  A good one at that.  I've read that some umbrella insurance doesn't actually pay out for damages against the insurance owner but instead covers the cost of litigation.


Similarly, I own a home, have H/O insurance, but no car.  I've been lead to believe I need to have auto insurance to get an umbrella policy...?

Call your homeowner insurance provider! You can get a definitive answer.

Typically, you can receive coverage for far less than the typical $175-200/yr since you won’t be driving a 2,000 pound missed while using a smart phone. 

You will usually find the lowest cost umbrella policy option will be with your current insurer, and you should receive a “multi line” discount on your existing Homeowners policy.

SavinMaven

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Re: buy umbrella insurance?
« Reply #13 on: December 02, 2017, 08:23:52 AM »
PTF

CoffeeR

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Re: buy umbrella insurance?
« Reply #14 on: December 02, 2017, 08:38:08 AM »
I have an umbrella and have had one for many years. I highly recommend one to anyone with assets. I recently had my parents purchase one as well.

Which brings me to my question:  on my umbrella there is a "Retained Limit" of $1000 and a "Loss Assessment Deductible" of  $50K. Does anyone understand what these are? I have the requisite underlying insurance (they would not issue the umbrella if I did not) and I certainly understand the generic term 'deductible', but the wording of 'retained limit' and 'loss assessment deducible' are unfamiliar.

tralfamadorian

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Re: buy umbrella insurance?
« Reply #15 on: December 02, 2017, 01:37:07 PM »
...While it's true that you're on the hook for settlements past your insured levels, your $1M policy holder has a very large incentive to provide the very best lawyers for whatever unfortunate situation you would find yourself in...

This was a significant determining factor for me especially as an investment real estate owner who as a group (I've been told, I don't have a source link) are more likely to be involved in a lawsuit than the average person. 

nwhiker

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Re: buy umbrella insurance?
« Reply #16 on: December 03, 2017, 09:36:02 AM »
I have an umbrella and have had one for many years. I highly recommend one to anyone with assets. I recently had my parents purchase one as well.

Which brings me to my question:  on my umbrella there is a "Retained Limit" of $1000 and a "Loss Assessment Deductible" of  $50K. Does anyone understand what these are? I have the requisite underlying insurance (they would not issue the umbrella if I did not) and I certainly understand the generic term 'deductible', but the wording of 'retained limit' and 'loss assessment deducible' are unfamiliar.

The retained limit would apply if there are claims made that are not covered by your underlying policies and effectively acts as a deductible. Umbrella policies often provide broader coverage than your auto and homeowners insurance. So.if there is a claim that is excluded under your underlying policies the umbrella will drop down and provide primary coverage with a $1k deductible.

With the loss assessment deductible assume that the HOA/PUD is hit with a verdict on a liability case that exceeds their liability limits. To fund the settlement they assess each member of the association. In this caase the first $50k of any assessment will be your responsibility.

Paul der Krake

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Re: buy umbrella insurance?
« Reply #17 on: December 03, 2017, 10:32:02 AM »
...your $1M policy holder has a very large incentive to provide the very best lawyers for whatever unfortunate situation you would find yourself in.

From other threads I've recently read, this is really a key factor in having a policy.  The insurance company will be highly motivated to defend the lawsuit using their lawyers.  So in a sense, you are paying for both the coverage amount toward any judgement as well as a good lawyer to defend against any judgement.

Or, unfortunately, an attorney with a reduced hourly rate and a pre-existing relationship with the insurance company who is going to churn the hell out of the file. As a trial attorney, and someone who frequently deals with insurance defense firms, I can tell you that the perception that an insurance company is going to be motivated enough to stray from their standard high-volume defense guys just isn't grounded in reality.
Are you saying that if the attorney knows it's a bad case and the judgement will in all likelihood reach the policy limit, they don't bother trying to limit the judgement to the policy limits and don't care if the defendant is on the hook for more?

merula

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Re: buy umbrella insurance?
« Reply #18 on: December 03, 2017, 04:25:24 PM »
For the record, I work for a large insurance carrier, and umbrella insurance is my specialty.

As my NW starts to get a little bigger, I'm starting to wonder if an umbrella insurance is in order.  Just got an online quote from geico, about $200/yr, seems like a good deal.  dont know much about umbrella ins, only that they're good to have.  Are they only good for liability/law suits?  any caveat?

$200/year is a decent deal for a $1 umbrella policy. (Just realized you didn't specify $1M, so I may be wrong, but it seems unlikely for this to be $500k or $2M, so I'm going to go with it.) Umbrella policies only cover liability (that is, injury to someone else or damage to someone else's property); they do not cover your own injury or damage at all. This will typically mean a law suit, but it's not required for coverage.

investment(pretax and after-tax): 640k
house: 20k left on mortgage.  worth about 400k.  near L.A.
two beater vehicles, worth nothing.   liability ins. coverage: $500,000 per person/$750,000 per occurrence
currently only two adult drivers (me and wife), will probably add 17 yr daughter as a new driver sometime in 2018.

I'm going to talk a bit about how umbrella policies protect you, so bear with me. Let's say that you (or your wife or daughter) cause a car accident that causes serious injury to 4 other people. Each of them requires medical care costing $500,000. Your primary auto policy will pay $750,000, your umbrella will pay $1M, and you will be on the hook for $250,000. However, some of your assets are exempt from judgment (401ks, IRAs, a part of your home and vehicles), so you may not actually have to pay that.

My point is that there's no amount of insurance that will protect all of your assets in all circumstances, and that your assets are somewhat protected from creditors already.

I did reject un/under-insured motorists coverage.

I would not recommend this. At the very least, find out what it would cost (typically minimal, but depends on the carrier) and find out what your state's minimum required limits are. Uninsured and Underinsured motorists coverage is the only part of an Umbrella that protects *YOU* directly.

If you have a $1M umbrella policy with UM/UIM and get hit by someone with minimal limits causing severe injury, your policy will pay the difference between those low limits and what your actual injuries cost. If you don't have UM/UIM, you're completely out of luck.

A friend of ours got hit on a bike by a driver a few months ago, the impact broke her hip.  No one will take her case against the distracted driver who hit her because "neither party has enough money to be worth it".  We have enough to be "worth it" - regardless of whether we're at fault.  To insure ourselves at $200/yr for the next 60 years is peace of mind that I value more than $12,000.  Others may not agree, but its something we've decided is worth it to us.

I am also worried about what would happen if I get hit by a driver while I'm on my bike. This is another reason I have uninsured/underinsured motorists coverage; that would pay in this instance, even though your friend wasn't driving at the time.

Personal injury attorneys will very often use readily-available information to guess the assets available, because actually finding out if there's money available costs money and these external indicators of wealth are pretty accurate for the population as a whole. For the OP, with beater cars and a house that's fairly cheap for a HCOL area, your "stealth wealth" can also protect your assets.

I also want to point out that if a case got to the point where a suit was demanding information about your ability to pay, your insurance policies are going to be at the top of that list. If you're really dealing with an exceptionally litigious person, they're probably not going to stop at the umbrella limit.

I have a $2 million umbrella policy. The way my policy works is it relies on the auto/homeowners for a certain amount, as you say. It doesn't add an additional $2 million to that, it instead insures up to $2 million total after both insurances are used. Different policies could be different though. Agreed that the price to add another $1 million to the policy is inexpensive because the risk isn't very great, which is why I did it. I'd rather pay an extra few bucks a month to not have to declare bankruptcy in the unlikely event where I'm responsible for more than $1 million but less than $2 million worth of damage.


I haven't read your policy, but every umbrella I've ever heard of actually does add an extra amount to the underlying coverage. If you have a $300k underlying auto limit and a $1M umbrella, your total available limits are $1.3M. If you policy works differently, that's unusual, and actually it sounds as though your carrier is trying to sell you less insurance but framing it as a $2M umbrella.

I'm interested in purchasing liability or umbrella insurance but do not own a home or a car. Therefore I do not have any insurance at all.  I have never had renter's insurance as there's almost zero value in my apartment--unless insurance covers sentimentality.

Is it possible to buy stand-alone umbrella and/or non-auto liability insurance?  A good one at that.  I've read that some umbrella insurance doesn't actually pay out for damages against the insurance owner but instead covers the cost of litigation.

Umbrella insurance requires underlying insurance. Technically, you don't need to have auto insurance, but in practice insurance companies aren't going to sell you an umbrella without Auto because auto is the key part of personal liability. What if you don't have a car? There's a coverage called Hired/Non-Owned Auto, which is awesome and really cheap. You buy it as a driver and so you have your own coverage if you ever drive someone else's car, rent a car or (if you have personal injury or UM/UIM coverage) if you get hit by a car while walking or biking. It's very cheap relative to a regular auto policy.

Renter's insurance not only covers your belongings but also your personal liability. If you aren't worried about your property limit, you can buy a low property limit and a high deductible, which would reduce the premium. (Although renter's insurance is cheap to begin with; ~$15/month usually.)

FULL DISCLOSURE: I don't buy an Umbrella policy myself. I have $300k primary limits, and I've looked into how my assets would be protected in my state in the event of a lawsuit. I'm comfortable with my decision; it fits my risk appetite. I would rather not pay for protection for something that is extremely far-fetched.

Part of what went into that decision is knowing how incredibly profitable umbrella policies are for insurance carriers. Really, really profitable. Stupid profitable. Like printing money profitable.

Insurance companies measure their profitability by something called a "combined ratio". The combined ratio is the loss ratio (losses paid out over premiums received) plus the expense ratio (business expenses over premiums). For simplicity, we can assume that if the combined ratio is 100%, the insurance company is breaking even. (This isn't quite true because it doesn't contemplate investment returns on the premiums received before the losses are paid, but in today's low interest rate environment, it's close to true.)

Across the insurance industry, combined ratios on personal auto are running in the low 100%s. Meaning, insurance companies are LOSING MONEY on personal auto coverage. Like most things, if you're buying something that the company selling is losing money on, you're probably getting a good deal.

Combined ratios on personal umbrellas? 80%. 20% profit, on average. AND, that's even ignoring that we as consumers are far more interested in the loss ratio, as that's what represents the part of insurance that actually benefits us. Industry-wide, loss ratios on personal umbrellas are below 50%. For every dollar paid in umbrella premium, only $0.50 is actually paid out in losses. That implies that the actual value of an umbrella that costs you $200/year is only $100/year. The other $100 you're paying is for peace of mind.

TempusFugit

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Re: buy umbrella insurance?
« Reply #19 on: December 03, 2017, 05:16:26 PM »
Thanks for that detailed explaination, merula. 

Do you have any insight into the notion that a large part of the value in an umbrella policy is that the insurance company will vigorously defend a lawsuit due to their liability? 

tralfamadorian

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Re: buy umbrella insurance?
« Reply #20 on: December 03, 2017, 05:39:42 PM »
For the record, I work for a large insurance carrier, and umbrella insurance is my specialty.
...
Personal injury attorneys will very often use readily-available information to guess the assets available, because actually finding out if there's money available costs money and these external indicators of wealth are pretty accurate for the population as a whole.
...

Merula, thank you for all the information!

Could you expand a little more on what "readily-available information" personal injury lawyers at looking at? 

nwhiker

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Re: buy umbrella insurance?
« Reply #21 on: December 03, 2017, 09:36:33 PM »
For the record, I work for a large insurance carrier, and umbrella insurance is my specialty.
...
Personal injury attorneys will very often use readily-available information to guess the assets available, because actually finding out if there's money available costs money and these external indicators of wealth are pretty accurate for the population as a whole.
...

Merula, thank you for all the information!

Could you expand a little more on what "readily-available information" personal injury lawyers at looking at?

They can order reports that will show real property and automobiles that your name is attached to. Unlesss their is some punitive damages claim financial assets are not typically discussed in initial discovery or depositions. If there is a judgment that is in excess of your insurance then the Plaintiff has the right to request a depositiokn in which they request information on your assets. Typically they are looking for liquid assets.

Paul der Krake

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Re: buy umbrella insurance?
« Reply #22 on: December 03, 2017, 10:41:26 PM »
They can order reports that will show real property and automobiles that your name is attached to. Unlesss their is some punitive damages claim financial assets are not typically discussed in initial discovery or depositions. If there is a judgment that is in excess of your insurance then the Plaintiff has the right to request a depositiokn in which they request information on your assets. Typically they are looking for liquid assets.
So, during a deposition they straight up ask "how much money do you have" and you're legally obligated to disclose all your accounts, and that almost entirely determines the judgement against you?

That's so messed up. Justice being blind and all that.

nwhiker

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Re: buy umbrella insurance?
« Reply #23 on: December 03, 2017, 11:30:05 PM »
They can order reports that will show real property and automobiles that your name is attached to. Unlesss their is some punitive damages claim financial assets are not typically discussed in initial discovery or depositions. If there is a judgment that is in excess of your insurance then the Plaintiff has the right to request a depositiokn in which they request information on your assets. Typically they are looking for liquid assets.
So, during a deposition they straight up ask "how much money do you have" and you're legally obligated to disclose all your accounts, and that almost entirely determines the judgement against you?

No if they are asking about accounts and total wealth there is already a judgment against you that the insurance didn't cover and you didn't voluntarily pay. They are looking for assets they can seize, lien, or income they can garnish. Not there are exceptions such as certain retirement accounts and property where there is lienholder interest.

Really it comes down to whether the attorney thinks they can collect from the person. It is very difficult and time consuming. If they run your assets and you own a 10 year old car and ar e living in a $300k home they are going to take whatever insurance limits there are and ,over on. As media noted above your stealth wealth protects you from being seen as a wealthy target.

That's so messed up. Justice being blind and all that.

tralfamadorian

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Re: buy umbrella insurance?
« Reply #24 on: December 04, 2017, 07:36:03 AM »
For the record, I work for a large insurance carrier, and umbrella insurance is my specialty.
...
Personal injury attorneys will very often use readily-available information to guess the assets available, because actually finding out if there's money available costs money and these external indicators of wealth are pretty accurate for the population as a whole.
...

Merula, thank you for all the information!

Could you expand a little more on what "readily-available information" personal injury lawyers at looking at?

They can order reports that will show real property and automobiles that your name is attached to. Unlesss their is some punitive damages claim financial assets are not typically discussed in initial discovery or depositions. If there is a judgment that is in excess of your insurance then the Plaintiff has the right to request a depositiokn in which they request information on your assets. Typically they are looking for liquid assets.

So, a lexisnexis report then?

merula

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Re: buy umbrella insurance?
« Reply #25 on: December 05, 2017, 10:46:36 AM »
Thanks for that detailed explaination, merula. 

Do you have any insight into the notion that a large part of the value in an umbrella policy is that the insurance company will vigorously defend a lawsuit due to their liability?

Generally speaking, defense expenses are outside the limits of liability. This is virtually always the case for personal insurance coverage; it depends on the type of coverage for commercial insurance. The impact of that structure is that the insurance company has an incentive to lower defense expenses up until the limits are exhausted.

So, if you're facing a suit demanding $1M and your insurance carrier thanks that they can settle for $50,000 by spending $100,000 in defense costs, they have an incentive to work for a settlement. On the other hand, if you're facing a suit demanding $10M and no matter what you're going to exhaust your limits, the incentives are different. However, an insurance company may not just pay their limits as a way to avoid any defense costs; that would be operating in bad faith and state Attorneys General really love to hear about stuff like that.

For the record, I work for a large insurance carrier, and umbrella insurance is my specialty.
...
Personal injury attorneys will very often use readily-available information to guess the assets available, because actually finding out if there's money available costs money and these external indicators of wealth are pretty accurate for the population as a whole.
...

Merula, thank you for all the information!

Could you expand a little more on what "readily-available information" personal injury lawyers at looking at?

They can order reports that will show real property and automobiles that your name is attached to. Unlesss their is some punitive damages claim financial assets are not typically discussed in initial discovery or depositions. If there is a judgment that is in excess of your insurance then the Plaintiff has the right to request a depositiokn in which they request information on your assets. Typically they are looking for liquid assets.

That's partially true, but also attorneys often believe that you can tell someone's financial position by the car they drive and the house they live in. If you're a personal injury attorney and you're looking at whether you should take a client who was injured in a car accident, you're thinking about whether this is likely to make you money. (Obviously, not all attorneys, but most personal injury attorneys work on contingency. They only get paid if they win AND if there's money in it.) If the potential defendant lives in a blue-collar neighborhood and drives a beater, is the attorney going to sink $500-$1,000 of their own money into figuring out whether there's blood in that stone? Or do they go by the law of averages, assume there isn't, and turn down the case?

So, during a deposition they straight up ask "how much money do you have" and you're legally obligated to disclose all your accounts, and that almost entirely determines the judgement against you?

That's so messed up. Justice being blind and all that.

It'll probably come in discovery before a deposition. It doesn't determine the judgment against you, it just determines whether an attorney thinks the case is worth it.

Let's take the example of the person who was injured by a car while biking, and let's say that she has $500,000 of injuries, lost work, etc. Whoever injured her owes her that money; that doesn't change. It's just that someone who has assets subject to a judgment can pay and someone who doesn't have those assets can't.

If she could pay for the attorney out of pocket, she'd likely be able to get a judgment. But if no one has any money, then the attorneys aren't interested.

Or she could have bought UM/UIM coverage, which would pay for her own injuries in a case where the person responsible can't.

Paul der Krake

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Re: buy umbrella insurance?
« Reply #26 on: December 05, 2017, 10:55:40 AM »
I mean, we're splitting hairs here but the result is the same: equal crime is supposed to get equal punishment, and it sounds like that's not what happens at all.

If I accidentally kill a 5 year old girl, I will be sued and potentially get a judgment against me because I'm a highly paid professional with assets.
If my brother with a 4 figure net worth and a teacher salary accidentally kills a 5 year old girl in the same conditions, he's less likely to be sued, and if he is the judgement will likely be within his policy limits.


merula

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Re: buy umbrella insurance?
« Reply #27 on: December 05, 2017, 10:58:35 AM »
I mean, we're splitting hairs here but the result is the same: equal crime is supposed to get equal punishment, and it sounds like that's not what happens at all.

If I accidentally kill a 5 year old girl, I will be sued and potentially get a judgment against me because I'm a highly paid professional with assets.
If my brother with a 4 figure net worth and a teacher salary accidentally kills a 5 year old girl in the same conditions, he's less likely to be sued, and if he is the judgement will likely be within his policy limits.

Yes. Although, on the other hand, vehicular manslaughter is a criminal matter, and you are more likely to be able to afford a defense attorney and get that negotiated down to probation.

Your brother is more likely to have to rely on an overworked public defender and get prison time.

So, the rich pay in money and the poor pay in time. Just like most things.

tarheeldan

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Re: buy umbrella insurance?
« Reply #28 on: December 05, 2017, 11:08:28 AM »
I did reject un/under-insured motorists coverage.
I would not recommend this. At the very least, find out what it would cost (typically minimal, but depends on the carrier) and find out what your state's minimum required limits are. Uninsured and Underinsured motorists coverage is the only part of an Umbrella that protects *YOU* directly.

If you have a $1M umbrella policy with UM/UIM and get hit by someone with minimal limits causing severe injury, your policy will pay the difference between those low limits and what your actual injuries cost. If you don't have UM/UIM, you're completely out of luck.

Thanks for the tip, but I don't get it - I already have coverage for that under my auto insurance and health insurance besides. Why do I need to add more on the umbrella?

Paul der Krake

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Re: buy umbrella insurance?
« Reply #29 on: December 05, 2017, 11:11:26 AM »
So, the rich pay in money and the poor pay in time. Just like most things.
Hm, that's a really insightful way to look at things. Having to pay for umbrella insurance is indeed a great problem to have.

willfire

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Re: buy umbrella insurance?
« Reply #30 on: December 05, 2017, 01:14:15 PM »
thanks for the great info, everyone.

AlexK

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Re: buy umbrella insurance?
« Reply #31 on: December 05, 2017, 01:32:37 PM »
They can order reports that will show real property and automobiles that your name is attached to. Unlesss their is some punitive damages claim financial assets are not typically discussed in initial discovery or depositions. If there is a judgment that is in excess of your insurance then the Plaintiff has the right to request a depositiokn in which they request information on your assets. Typically they are looking for liquid assets.

Thanks for this info, I have been wondering how an attorney could find out my assets. My brother is an attorney and I didn't get a straight answer. My house and cars are low end but the rental properties are recorded in my name so that is a problem. Would an LLC shield me at all or could the LLC be easily discovered too?


katsiki

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Re: buy umbrella insurance?
« Reply #32 on: December 05, 2017, 02:45:42 PM »
They can order reports that will show real property and automobiles that your name is attached to. Unlesss their is some punitive damages claim financial assets are not typically discussed in initial discovery or depositions. If there is a judgment that is in excess of your insurance then the Plaintiff has the right to request a depositiokn in which they request information on your assets. Typically they are looking for liquid assets.

Thanks for this info, I have been wondering how an attorney could find out my assets. My brother is an attorney and I didn't get a straight answer. My house and cars are low end but the rental properties are recorded in my name so that is a problem. Would an LLC shield me at all or could the LLC be easily discovered too?

This varies some by state but in most states you can easily lookup businesses owned by a given name.  Some states are better than others at being "anonymous".

seattlecyclone

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Re: buy umbrella insurance?
« Reply #33 on: December 05, 2017, 05:22:23 PM »
I did reject un/under-insured motorists coverage.
I would not recommend this. At the very least, find out what it would cost (typically minimal, but depends on the carrier) and find out what your state's minimum required limits are. Uninsured and Underinsured motorists coverage is the only part of an Umbrella that protects *YOU* directly.

If you have a $1M umbrella policy with UM/UIM and get hit by someone with minimal limits causing severe injury, your policy will pay the difference between those low limits and what your actual injuries cost. If you don't have UM/UIM, you're completely out of luck.

Thanks for the tip, but I don't get it - I already have coverage for that under my auto insurance and health insurance besides. Why do I need to add more on the umbrella?

I basically agree with tarheeldan about uninsured motorist coverage. It seems like you're basically buying insurance that will pay certain expenses so that your health insurance and/or disability insurance doesn't have to. If the person who hits me can afford to pay the bills they owe, great! If not, that's why I have health insurance and disability insurance, and drive a car cheap enough that a replacement wouldn't break the bank.

merula

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Re: buy umbrella insurance?
« Reply #34 on: December 06, 2017, 07:50:00 AM »
Thanks for the tip, but I don't get it - I already have coverage for that under my auto insurance and health insurance besides. Why do I need to add more on the umbrella?

Your auto insurance doesn't typically pay for your own injuries; it generally requires a separate coverage like Personal Injury Protection (PIP) or UM/UIM. You can absolutely have UM/UIM in your primary auto policy and not have it in the umbrella, but if you don't have it at all, then it's a mistake to think that your Auto policy will pay for your injuries.

And your health insurance will pay for your care, but subject to deductibles and copays and will not pay for lost wages, pain and suffering, loss of companionship for your family, etc.

I basically agree with tarheeldan about uninsured motorist coverage. It seems like you're basically buying insurance that will pay certain expenses so that your health insurance and/or disability insurance doesn't have to. If the person who hits me can afford to pay the bills they owe, great! If not, that's why I have health insurance and disability insurance, and drive a car cheap enough that a replacement wouldn't break the bank.

This is another way to handle it; buy different insurance to get to a similar position. The key here is the disability insurance (hopefully long-term?).

It's also completely acceptable to look at the risks and your risk appetite and say "I'm OK with self-insuring on this".

My goal is to make sure everyone is aware of what Auto, UM/UIM and Umbrella policies cover and don't cover, not to make sure everyone buys everything. (See above, *I* don't buy an umbrella.) There's a lot of misinformation out there, and this is a complicated topic. On one hand, the fact that it's complicated means job security for me, but it also means that even very smart people like those on this forum can be easily misled.

tarheeldan

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Re: buy umbrella insurance?
« Reply #35 on: December 06, 2017, 07:56:05 AM »
Thanks for the tip, but I don't get it - I already have coverage for that under my auto insurance and health insurance besides. Why do I need to add more on the umbrella?

Your auto insurance doesn't typically pay for your own injuries; it generally requires a separate coverage like Personal Injury Protection (PIP) or UM/UIM. You can absolutely have UM/UIM in your primary auto policy and not have it in the umbrella, but if you don't have it at all, then it's a mistake to think that your Auto policy will pay for your injuries.

And your health insurance will pay for your care, but subject to deductibles and copays and will not pay for lost wages, pain and suffering, loss of companionship for your family, etc.

Gotcha! I wasn't clear that I am paying for UM/UIM under my primary auto policy. I just rejected additional coverage when signing up for the umbrella policy.

Counting_Down

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Re: buy umbrella insurance?
« Reply #36 on: December 14, 2017, 01:55:51 PM »
Wow Merula +10000, thank you!

In response to the UM/UIM debate, a different friend (apparently I have accident prone friends) was in an accident in a taxi on his way home from the airport.  Taxi hit ice, slammed into something, and said friend broke both legs pretty horrifically.  Taxi insurance didn't cover his now double-comma "bionic" legs.  He wrote a really great explanation of UM/UIM after that and how it pretty much saved his legs... and I updated our insurance.

Merula explained all of this well and I greatly benefited from the insight. My simple summary - Auto/Home insurance pays for other people's property damage and your liability for their damage up to a certain point, umbrella covers your liability for causing damage or pain and suffering of someone else beyond the limits you have for home/auto.  If you get hurt, it should be covered by the person's insurance who caused the "accident"... unless they don't have any or not enough.  In that case the options are to 1) litigate for damages in excess (only if you can find an interested lawyer if the person has no apparent assets as discussed above) or 2) keep your own under/uninsured coverage.

Someone please chime in if I still messed that up.

NinetyFour

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Re: buy umbrella insurance?
« Reply #37 on: December 20, 2017, 08:27:38 AM »
I just got a quote for umbrella policy.  $187 per year for $1million, and $330 per year for $2million.

I see that in Colorado, IRAs are protected, so I'm not sure I even need this umbrella policy.  What to do....??

I do have a rental house, and accidents can happen...

Any thoughts would be appreciated.

lexde

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Re: buy umbrella insurance?
« Reply #38 on: December 20, 2017, 08:39:36 AM »
I just got a quote for umbrella policy.  $187 per year for $1million, and $330 per year for $2million.

I see that in Colorado, IRAs are protected, so I'm not sure I even need this umbrella policy.  What to do....??

I do have a rental house, and accidents can happen...

Any thoughts would be appreciated.
Value of rental house?

Just put the house into an LLC. That way, the worst that can happen is you lose the house if something catastrophic happens.

merula

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Re: buy umbrella insurance?
« Reply #39 on: December 21, 2017, 09:14:44 AM »
I just got a quote for umbrella policy.  $187 per year for $1million, and $330 per year for $2million.

I see that in Colorado, IRAs are protected, so I'm not sure I even need this umbrella policy.  What to do....??

I do have a rental house, and accidents can happen...

Any thoughts would be appreciated.

Those premiums seem reasonable.

There's no right or wrong answer to "Do I need an umbrella?" There's only your individual risk position.

Here are the facts: very large liability claims do happen, but rarely. They are (generally) insurable. All of your insurance limit would be available to pay for those claims, and some of your assets would be (and what exactly that is depends on your state). There is no way to buy enough insurance so that your assets would *never* be subject to judgment; you can only guess as to what the highest probable loss would be based on your exposures.

So, let's say for the sake of argument that, in CO, all of your retirement savings and the entire value of your primary residence would be protected from judgement, but your taxable accounts and your rental property would not.

Let's say that your total assets subject to judgment in your state are $X and your primary liability limit is $Y. You've said that you're not comfortable with your probability of losing $X relative to the probability of a total loss of $X+$Y. At what point would you be comfortable given the cost of umbrella insurance? Are you comfortable paying $187 per year for another $1M of buffer? Or would you be more comfortable paying $337 per year for an extra $2M of buffer? Or more? Every additional layer will be cheaper until you hit the carrier's minimum by line or the most they're willing to offer, so you could go higher too.

So, what's your risk appetite? At what point are you willing to say "That's so unlikely I'm not willing to pay more to protect myself against it"?

Value of rental house?

Just put the house into an LLC. That way, the worst that can happen is you lose the house if something catastrophic happens.

That might work, but there could still be some personal liability. Discuss with an attorney before you do anything.

SimpleCycle

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Re: buy umbrella insurance?
« Reply #40 on: December 21, 2017, 09:23:13 AM »
It is worth noting that if you are still working, you are also insuring against the possibility of future wages being garnished to pay a judgement.  For us, that would be more devastating than the loss of taxable assets.

Aggie1999

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Re: buy umbrella insurance?
« Reply #41 on: December 21, 2017, 01:10:14 PM »
It is worth noting that if you are still working, you are also insuring against the possibility of future wages being garnished to pay a judgement.  For us, that would be more devastating than the loss of taxable assets.

+1. A main reason even if someone is starting out with little savings, they probably should still get umbrella insurance.

As to the amount, I went with $2 million. $1 million didn't seem like enough and above $2 million had to get special approval or some such. So $2 million seemed like a good number. Paying $350 per year for the $2 million in coverage from Metlife in Texas.

merula

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Re: buy umbrella insurance?
« Reply #42 on: December 22, 2017, 08:39:50 AM »
It is worth noting that if you are still working, you are also insuring against the possibility of future wages being garnished to pay a judgement.  For us, that would be more devastating than the loss of taxable assets.

+1. A main reason even if someone is starting out with little savings, they probably should still get umbrella insurance.

As to the amount, I went with $2 million. $1 million didn't seem like enough and above $2 million had to get special approval or some such. So $2 million seemed like a good number. Paying $350 per year for the $2 million in coverage from Metlife in Texas.

This is true, but with a couple of caveats. Foremost is that courts assume average, not mustachian, behavior. So if you're FIRE because you worked hard at a low-to-mid pay job and just lived frugally, the courts aren't *really* going to expect you to be able to pay for millions of damages by working again, because most people couldn't. This is more of a concern for very-high-earners in jobs that are well-known for high pay. (And remember that the people who are going to be making these decisions are attorneys, so they're going to be projecting their own biases as to what is high pay and what is a reasonable level of expenses, which are stereotypically anti-mustachian.)

And in most states and circumstances, these debts can be discharged in bankruptcy with no impact to future wages.


NinetyFour

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Re: buy umbrella insurance?
« Reply #43 on: December 22, 2017, 09:05:03 AM »
Gosh, I am still confused as to whether I need one of these policies.  And @lexde , I saw your suggestion--thanks for that.  Is setting up an LLC a pretty easy thing to do?

I feel like a decision-making flow chart would be really helpful here....

It does seem like in my state (CO) retirement accounts are protected from lawsuits, so there's that.

NinetyFour

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Re: buy umbrella insurance?
« Reply #44 on: December 22, 2017, 09:31:41 AM »
Oops--I totally missed a few responses above--including yours, @merula .  Very helpful.

One thing to clarify.  My rental house is on the same lot as the one I live in.  I rent out the "main" house and live in a small cottage on the back of the lot.  Not sure if that makes any difference in terms of what might be protected in the case of a judgment against me.

Thanks!

lexde

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Re: buy umbrella insurance?
« Reply #45 on: December 22, 2017, 07:00:03 PM »
Gosh, I am still confused as to whether I need one of these policies.  And @lexde , I saw your suggestion--thanks for that.  Is setting up an LLC a pretty easy thing to do?

I feel like a decision-making flow chart would be really helpful here....

It does seem like in my state (CO) retirement accounts are protected from lawsuits, so there's that.

Setting up an LLC is easy in my state, I'm not familiar with CO laws for that, though. I would highly recommend though that you spring for a 1-hour consultation with an attorney regarding any potential premises liability issues that you are wanting to protect against, etc. just to be sure that all of your bases are covered. (If you let me know what specific issues you'd like to protect against, I can ask my network and either find you an attorney to speak with or see if I can get some basic questions answered for you). They may determine that a general liability policy and/or LLC is the way to go. The attorney would be your flow chart. :-)

merula

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Re: buy umbrella insurance?
« Reply #46 on: December 26, 2017, 09:11:56 PM »
Oops--I totally missed a few responses above--including yours, @merula .  Very helpful.

One thing to clarify.  My rental house is on the same lot as the one I live in.  I rent out the "main" house and live in a small cottage on the back of the lot.  Not sure if that makes any difference in terms of what might be protected in the case of a judgment against me.

Thanks!

Whooo! My first mention. That is cool.

So, your "primary residence" is usually what's protected from judgment, the theory being that making someone homeless to pay debts is not the best public policy. Is the whole lot considered one single-family residence that you just happen to rent out part of, or has it been divided up somehow? You probably want to check into your local laws about how "primary residence" is defined for those purposes but my guess would be that the value of the whole lot would be considered, since you probably couldn't sell just the big house, so it's somewhat similar to renting out rooms in your house.

letsdoit

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Re: buy umbrella insurance?
« Reply #47 on: June 29, 2018, 10:44:28 AM »
Curious to see what others have to say!

I just wanted to note that GEICO has a little explainer about what's covered:
https://www.geico.com/information/aboutinsurance/umbrella/

And also that my umbrella policy with GEICO is $149/yr for $1m liability limit. I did reject un/under-insured motorists coverage.

ours with GEICO is $199 for 1 mill.  I cant remember what it was last year.

Cezil

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Re: buy umbrella insurance?
« Reply #48 on: June 29, 2018, 11:55:34 AM »
Wow, merula, thank you for everything you have patiently explained!

I think when we next meet with our insurance guy, we'll be adding on $1M umbrella..just in case.  $200/year is worth the peace of mind.