Umbrella Insurance, Yay or Nay?

[ltt]

If you have teenagers that are driving, and also have a lot of assets, definitely worth it.  It doesn't really cost very much for peace of mind.

[merula]

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?

NJ Homestead Exemption - http://www.jenkinsclayman.com/new-jersey-homestead-exemption "New Jersey bankruptcy exemption laws contain no specific exemption for the homestead"

NJ IRA Creditor Protection - http://www.nytimes.com/2009/04/02/business/retirementspecial/02CREDIT.html?_r=0 "Most states, including New York, New Jersey and Connecticut, exempt 100 percent of the assets while they are in the [IRA]."

[arebelspy]

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.

I think rube's point is that if it's an issue not covered by the policy, they won't defend it.

From what I understand from actual real life scenarios though, if it's in question they typically do both simultaneously - send lawyers to defend, in case it is found to be covered, while also fighting to say that it's not covered.

[VirginiaBob]

Oh man, I just read Virginia's homestead exemption: $5,000 plus $500 per dependent (so pretty much nothing).  At least the retirement accounts are protected though.

[Megatron]

Wow, it's a good thing I asked this question. You guys are packed full of great advice.
I live in the state of Illinois, it looks like the homestead exemption is crap.
http://www.nolo.com/legal-encyclopedia/illinois-bankruptcy-homestead-exemption.html

Also I read somewhere that if you own a home with a wife/husband and if you caused an auto accident which is more than what your auto liability covers, the home is exempt from the lawsuit, because your wife also owns it. Not sure if I'm understanding it correctly. My wife and I own an apartment building that is also our primary residency but we bought it before we were married as joint tenants.
As far as 401k and Roth IRA, are those protected assets?

[TN_Steve]

***

Also I read somewhere that if you own a home with a wife/husband and if you caused an auto accident which is more than what your auto liability covers, the home is exempt from the lawsuit, because your wife also owns it. Not sure if I'm understanding it correctly. My wife and I own an apartment building that is also our primary residency but we bought it before we were married as joint tenants.
As far as 401k and Roth IRA, are those protected assets?

I am not a lawyer in Illinois.  But depending upon where you have the accident, there are ways around it.  For example, in Tennessee, the "family purpose doctrine" could snare you if you were doing something remotely connected to a family purpose when you had the car wreck.  Then the other spouse's assets could be hit.  401k is protected.  IRAs are up to 1.25 million and with no limit if they were rolled over from a qualified plan.  See this Tribune article for overview:  http://articles.chicagotribune.com/2013-09-20/business/sc-cons-0919-journey-20130920_1_self-directed-ira-retirement-age-retirement-money

[brooklynguy]

I have an umbrella policy, which guards against the textbook example of the type of catastrophic risk that makes sense to purchase insurance for (rather than self-insure against), as MMM has written about here:

http://www.mrmoneymustache.com/2011/06/02/insurance-a-tax-on-people-who-are-bad-at-math/

I sleep much better at night knowing that (for the price of a couple hundred bucks a year) I have some protection against my entire stash going up in smoke because, say, my two year old decides it would be fun to toss a bowling ball out the window.

[merula]

I think rube's point is that if it's an issue not covered by the policy, they won't defend it.

From what I understand from actual real life scenarios though, if it's in question they typically do both simultaneously - send lawyers to defend, in case it is found to be covered, while also fighting to say that it's not covered.

You're exactly right. The duty to defend is broader than the duty to indemnify. If there's a slight glimmer that something could be a covered loss, not only is the insurance company required to defend you, they'll typically want to. The alternative is paying you after the fact for both indemnification and defense, and claims attorneys believe very strongly that they can get a more favorable judgment for cheaper than anyone.

[aspiringnomad]

Lots of good answers here. Also interesting that a couple insurance agents don't think it's worthwhile.

I have an umbrella policy. For me it was a no-brainer after I purchased a rental property, given the relatively low cost ($180/year) and the protection and legal representation it affords.

[bye-bye Ms. FancyPants]

For those of you with rentals, if you don't mind me asking, who did you get your umbrella policy from?  We have Geico car insurance, but they won't cover an umbrella policy for us because of the number of rentals we have (6). They recommended looking into a "commercial" policy.  The only company that we found (so far) that would give us a quote was for $497/year. Thoughts?   

[arebelspy]

Check with travelers. And yeah, my umbrella is way more expensive than most because of my multiple rentals.

[merula]

For those of you with rentals, if you don't mind me asking, who did you get your umbrella policy from?  We have Geico car insurance, but they won't cover an umbrella policy for us because of the number of rentals we have (6). They recommended looking into a "commercial" policy.  The only company that we found (so far) that would give us a quote was for $497/year. Thoughts?   

That doesn't actually seem that bad for what you're getting. Is that a $1M limit? With your Auto included?

You'll typically be best off having all your coverages with one carrier. Also, if you get an independent insurance agent, they'll do the work of finding you a solution. When you're with a direct carrier like Geico, they just say "No" and then you're SOL and shopping around on your own.

[bye-bye Ms. FancyPants]

That doesn't actually seem that bad for what you're getting. Is that a $1M limit? With your Auto included?

You'll typically be best off having all your coverages with one carrier. Also, if you get an independent insurance agent, they'll do the work of finding you a solution. When you're with a direct carrier like Geico, they just say "No" and then you're SOL and shopping around on your own.

The quote was just for the umbrella, but yes, it was for 1M.

 

Check with travelers. And yeah, my umbrella is way more expensive than most because of my multiple rentals.

Thanks, I will check with travelers also. I've been dragging my feet because of the cost, but I guess I should just cough it up.

Thanks for your replies. 

[2lazy2retire]

If you have teenagers that are driving, and also have a lot of assets, definitely worth it.  It doesn't really cost very much for peace of mind.

It was relatively cheap until we added 2 teen drivers to our auto policy - we now pay a little over 1000 for 2 mil umbrella