Author Topic: Liability Insurance  (Read 4126 times)

Bookworm

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Liability Insurance
« on: March 28, 2014, 11:59:24 PM »
How much liability auto insurance should we carry, in relation to our net worth?

One of our cars was totaled in an accident recently.  Our uninsured motorist coverage is paying for the car, and we retained an attorney to pursue getting medical expenses reimbursed.  It is not relevant to this accident, but the attorney mentioned that for the amount of assets we have (personal home, two rental properties with equity, etc.), we don't have enough liability coverage in case of an at-fault accident on our part.  He suggested $500,000, although our net worth is only about $260,000.  Does that make sense?

Cyrano

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Re: Liability Insurance
« Reply #1 on: March 29, 2014, 08:29:58 AM »
Your liability isn't directly related to your assets. It's more related to what you do and have that can injure or kill people. Do you drive? Do you shoot firearms? Do you have a motorboat? Is there a feature in your home that people can fall from?

So let's say you have a million dollar judgment against you. There are a couple of plans. Plan A is declare bankruptcy and start over. Plan B is liability insurance. If your net worth is large enough that Plan A is a bad plan, go with Plan B


La Bibliotecaria Feroz

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Re: Liability Insurance
« Reply #2 on: March 29, 2014, 12:13:53 PM »
Sounds like he's suggesting that you get umbrella liability insurance--basically a separate policy that protects you in a variety of situations, driving, homeowners, and more. I've heard that it's a good idea, but we don't have it.

Frugal Frequency Holder

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Re: Liability Insurance
« Reply #3 on: August 24, 2014, 09:12:07 PM »
Sounds like he's suggesting that you get umbrella liability insurance--basically a separate policy that protects you in a variety of situations, driving, homeowners, and more. I've heard that it's a good idea, but we don't have it.

I talked with my insurance broker this week about a liability. He corrected a common misunderstanding about "umbrella" liability policies: in his experience, such policies increase only existing coverage.

For example, if I have an existing auto coverage, but no coverage on my rental property, then an umbrella policy would increase the amount of liability coverage on my existing auto policy, but not liability on my rental.

flashpacker

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Re: Liability Insurance
« Reply #4 on: August 24, 2014, 11:47:13 PM »
People usually get an umbrella if they have home and auto insurance and high net worth. To be eligible for the umbrella you usually need a minimum amount of liability on each policy individually, typically around $250-300K in my experience, then you get an umbrella that brings you up to whatever your net worth is e.g., $1-1.5million. The umbrella beings the liability limit on both the auto and home up to that level.  It's usually cheaper or just as cheap to do it this way, rather than having say $500,000 on your auto.

Dicey

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Re: Liability Insurance
« Reply #5 on: August 25, 2014, 12:27:56 AM »
We just bought an umbrella policy. Here's what I found weird. Say you purchase a $1M policy. You're not actually getting $1M extra coverage. It is added to your existing insurance to bring the total insurance coverage to $1M. I haven't figured out all the details, but I found this to be quite misleading. Anyone here who can explain this to me in small words and tell me why I shouldn't feel pissed/ripped off/mis-led?

forummm

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Re: Liability Insurance
« Reply #6 on: August 25, 2014, 09:23:01 AM »
Umbrella policies don't need to have any relationship to your net worth. If you get sued, and a judgment is found against you for $XXX, that's what the other party is entitled to. If you have a liability insurance policy with a limit bigger than $XXX, then they pay out. If it's smaller than $XXX, then they pay out to the limit and then you are responsible for the rest. The insurer will also likely provide a legal defense for you so that you win the lawsuit or reduce the damages awarded (meaning they don't have to pay out as much). It's pretty easy to get coverage up to $10M, but that's probably much more than you need. Generally you'll need to have liability limits for at least your auto and home/renter policies of around $300k, and then the umbrella starts adding to it to reach however many millions you're purchasing coverage for. If you have other risky activities/assets they may require you to have primary insurance for them as well before the umbrella will kick in.

If you have children that drive your cars or are on your policy, you could be sued for any auto accidents they are involved in.

If you have a reasonable amount of money, you probably want one. If you're broke, you probably don't care because they can't get blood from a stone.

If you get one, don't tell people you have one, since it means there are deep pockets for litigants to pursue.

BlueMR2

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Re: Liability Insurance
« Reply #7 on: August 25, 2014, 09:59:41 AM »
Sounds like he's suggesting that you get umbrella liability insurance--basically a separate policy that protects you in a variety of situations, driving, homeowners, and more. I've heard that it's a good idea, but we don't have it.

We don't either, it's just too expensive.  We don't drive much anymore, but just owning multiple vehicles jacks us up into the "high risk" category where the umbrella becomes cost prohibitive.

I've also found from reading them (while researching) that they're VERY restrictive.  If we'd gone umbrella, I would have lost some coverage points in exchange for the higher overall coverage.  One specific example: Under my auto insurance, tour rally events are covered as it's not racing.  The umbrella redefines the word "racing" to include tour rallys, so I would NOT be covered on those events anymore even though I'd be shelling out more cash for supposedly "better" insurance...

merula

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Re: Liability Insurance
« Reply #8 on: August 25, 2014, 10:18:47 AM »
Full disclosure: I'm an insurance underwriter. I work for one of the larger carriers in the US, dealing with commercial insurance. Personal lines is different, though a lot of the basics are the same.

We just bought an umbrella policy. Here's what I found weird. Say you purchase a $1M policy. You're not actually getting $1M extra coverage. It is added to your existing insurance to bring the total insurance coverage to $1M. I haven't figured out all the details, but I found this to be quite misleading. Anyone here who can explain this to me in small words and tell me why I shouldn't feel pissed/ripped off/mis-led?

Your umbrella limit should be in addition to the underlying insurance limits. For example, if you have a $300k liability limit on your auto, and a $1m umbrella, you'd have $1.3m available to pay for your liability arising from an auto accident. I've never heard of any umbrella working like that. Are you willing to share more details?

I talked with my insurance broker this week about a liability. He corrected a common misunderstanding about "umbrella" liability policies: in his experience, such policies increase only existing coverage.

For example, if I have an existing auto coverage, but no coverage on my rental property, then an umbrella policy would increase the amount of liability coverage on my existing auto policy, but not liability on my rental.

This is correct. Generally speaking, your umbrella will include a schedule of underlying coverage. If you don't have Auto, it'll probably include an Auto exclusion.

If you have a reasonable amount of money, you probably want one. If you're broke, you probably don't care because they can't get blood from a stone.

If you get one, don't tell people you have one, since it means there are deep pockets for litigants to pursue.

The idea of deep pockets is more or less why I don't have an umbrella. I've seen time and time again how having lots of insurance makes you a more likely target for lawsuits. If I get sued, the plaintiff is going to ask for my insurance policy in discovery, and is probably going to be willing to settle for less if my limits are lower. Granted, this is more about non-economic damages. I do have higher-than-standard primary limits that are enough to cover likely economic losses.

If we'd gone umbrella, I would have lost some coverage points in exchange for the higher overall coverage.  One specific example: Under my auto insurance, tour rally events are covered as it's not racing.  The umbrella redefines the word "racing" to include tour rallys, so I would NOT be covered on those events anymore even though I'd be shelling out more cash for supposedly "better" insurance...

Did the terms of the underlying primary auto coverage change? An umbrella is generally a separate policy, and can be more or less restrictive than the underlying policies. So, your umbrella might define tour rally events as racing, but as long as the underlying auto policy retains the original definition (which seems likely), you have the same coverage you had prior to purchasing an umbrella in that respect, you just wouldn't have a higher limit available for tour rally events.

crazyworld

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Re: Liability Insurance
« Reply #9 on: August 25, 2014, 11:02:58 AM »
Can someone clarify if anything is exempt from litigation?  For example, primary home, 401K?  I can't find a clear answer. 

merula

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Re: Liability Insurance
« Reply #10 on: August 25, 2014, 12:53:02 PM »
Can someone clarify if anything is exempt from litigation?  For example, primary home, 401K?  I can't find a clear answer.

It depends on the state, to some extent. If you have a judgment against you and file bankruptcy, then assets that are protected by bankruptcy law wouldn't be touched. If you don't file bankruptcy, ERISA law might not apply, in which case your state law would. My understanding is that most have some protection for retirement accounts.

As for your primary home, check out the homestead exemption for your state. Minnesota's is $390k, but apparently Alaska's is only $54k.