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.