Umbrella insurance questions????

[TOOLMAN]

My State Farm agent said I should reduce my umbrella liability from 2M to 1M because he said most people have 1M, and having more than 1M makes you a target. My NW was 2M then and so I took his advice. Now NW is approaching 4M and I am reviewing my coverage.

State Farm charges me $350/yr. for 1M of umbrella insurance. 58 yrs old, 3 cars, 1 pickup, 1 motorcycle, 1 airplane. Very few or No claims in 10 years. Except for the Motorcycle & airplane, home owners & the rest is with State Farm. Autos limits are stacked.

Q1. How much should I have?
Q2. How much should I pay?
Q3. Which provider is a good choice?
Q1. Is it a problem having an umbrella insurance policy from someone other than your primary insurance company?

Thanks for any suggestions.

 

[Katsmeow]

There have been a number of threads on this. FWIW, I don't find your agent's arguments persuasive. In the first place, who cares what most people have? Most people don't have a proper understanding of insurance and risk. Many people use the entirely specious reasoning that umbrella coverage should equal net worth. That is ridiculous. If you have, for example, net worth of $1 million and have $1 million in insurance and there is a $5 million claim against you that succeeds then you are blown away.

Looked at properly, in my opinion, one should consider the things in your life that could give rise to a claim and also consider what kind of loss you could handle without insurance. Of course, likelihood of a claim is a factor.

For example, a person with a swimming pool probably has a greater likelihood of a claim that might hit the umbrella than, say, someone who lives in a similar home that doesn't have a pool.

Of course, anyone could have a claim due to a bad auto accident (probably the most likely source for a non-business related claim) or have a liability claim where someone is injured on your property.

In your case, I wonder about the motorcycle and the airplane. Do you ever have a passenger on your motorcycle? Since those riding on motorcycles have a greater chance of injury, you could potentially be sued by someone riding on your motorcycle who is injured (or by that person's heirs in the event of death)?

Same thing on the airplane? Every take anyone up with you? Of course, there is the possibility of crashing and injuring someone on the ground and or destroying property.

Get a quote for coverage at different levels. In my experience the higher limits, the less expensive an extra $1,000,000 is for example since most claims don't reach the maximum.

 

[wanaberetiree]

I agree with @TOOLMAN, but I do feel that your NW plays a significant role in determining an umbrella limits. I have ~3mm in NW and have a 2mm umbrella. You want to protect you assets after all, don't you?

If you have 10mm in NW and 1mm umbrella >>> that will make you a target!

 

[Gumby]

I second Katsmeow on this. Net worth is not a particularly good yardstick. In addition to the gigantic judgment factor she mentions, it is conversely possible that your entire net worth is in assets that are exempt from execution, such as retirement accounts in some states and any home equity subject to a homestead exemption. You should really look at your potential exposure, as Katsmeow suggests.

One thing I find puzzling is the idea that a larger policy makes you a target. No one knows what coverage you might have unless and until they sue you and are able to get that information in discovery.

You are also likely to get a better deal on umbrella coverage if you get it from the same carrier with which you have your homeowners and car insurance.

Laws vary from state to state, so you really should consult your own attorney regarding potential exposure.

 

[Rambler]

I wouldn't stick with 1 million umbrella if I had 4 million assets. That, in my humble opinion, would be lunacy. My 5m umbrella policy costs about 800 per year, or 0.016% of the insured amount. We don't have a plane or a motorcycle but we do have a pool, that does receive teenaged visitors from time to time. I would rather protect my assets a little bit better, and it allows me to sleep better at night knowing that in a worst case scenario, I can still most likely stay retired, as opposed to having to start a new career in my old age to be able to feed myself.

R

 

[TOOLMAN]

In your case, I wonder about the motorcycle and the airplane. Do you ever have a passenger on your motorcycle?

[Almost never.]

Same thing on the airplane? Every take anyone up with you? Of course, there is the possibility of crashing and injuring someone on the ground and or destroying property.

[The State Farm policy has a aviation exemption.]

.

[Thanks for the perspective.]

 

[Katsmeow]

[The State Farm policy has a aviation exemption.]

If by exemption you mean the State Farm policy has an exclusion for aviation liability, then the first thing I would be doing is seeing if I could obtain aviation coverage even if from a company other than State Farm.

Gumby's point is a good one. The laws in each state are different so what might be your exposure in one state might be different than the exposure in another state. Therefore, consulting with an attorney in your state is a good idea.

 

[JoeWras]

If by exemption you mean the State Farm policy has an exclusion for aviation liability, then the first thing I would be doing is seeing if I could obtain aviation coverage even if from a company other than State Farm.

Gumby's point is a good one. The laws in each state are different so what might be your exposure in one state might be different than the exposure in another state. Therefore, consulting with an attorney in your state is a good idea.

Yeah, someone was discussing not converting a 401k to IRA for lawsuit exclusion in their state. I'm not sure what the law is in my state, so I need to talk to my attorney again to clarify. This all got me thinking.

And I'm still uncomfortable being way below NW (aside from law protected exclusions) for the umbrella. I have friend who's daughter was in a car accident and another young person was killed. The judgement was over $1M, very possible for promising young person. Now was he a "target" because of the 2M umbrella, or did it just save his butt?

I don't know, just know his umbrella paid. The only hassle was it went to trial and lasted way too long and was very painful for all involved since the kids were friends and the parties all knew each other.

 

[HighRoller]

I'm with Farmers and pay $200 a yr for a million dollar policy. All 3 cars (including a Corvette) and home/property are covered.

 

[Ready]

If you own and operate an airplane, you need more than $1M in coverage, period. It sounds like your broker may not have much experience with aviation. Things can go very wrong once you leave the ground. Go with the $5M. It's worth the peace of mind.

 

[wanaberetiree]

I pay $315 for $2mm umbrella - 1 house, 2 cars

 

[nwsteve]

We have State Farm and have 2 Million Umbrella, annual cost is 275.
Car, RV, no kids at home and rental property which have a primary liability coverage of 1 Million to cover 4 properties.
Nwsteve

 

[MichaelB]

+1 @ Katsmeow and Gumby.

State Farm insures us and has a $2M limit, which kicks in after the auto and homeowners liability is used. We pay more but are in a higher risk category because of a pool and other factors.

 

[timo2]

My State Farm agent said I should reduce my umbrella liability from 2M to 1M because he said most people have 1M, and having more than 1M makes you a target.

Thanks for any suggestions.

I'm questioning the validity of any advice from your agent after the 'makes you a target' remark.

Maybe you should go live under a bridge to be less of a target

 

[braumeister]

I'm questioning the validity of any advice from your agent after the 'makes you a target' remark.

+1
Besides, how is anyone going to know what coverage you have?

 

[JoeWras]

I'm questioning the validity of any advice from your agent after the 'makes you a target' remark.

Maybe you should go live under a bridge to be less of a target

The funny thing is I've read this elsewhere.

But I don't get it.

It could cause a more difficult lawsuit. For example, the plaintiff is thinking 500k but in discovery sees the umbrella, so goes for more. This requires the insurance company to do more work, maybe go to trial instead of settle.

It is a strange comment. The only thing I can think of is "he has an umbrella for 3M, he must be worth loads, so let's do more discovery and see if we can't get 5m". But that's a big, big personal lawsuit that would require something really unfortunate or stupid.

 

[Bikerdude]

+1 @ Katsmeow and Gumby.

Agree with this. Don't insure what you don't have to.

 

[Seeking Hobbes]

I'm with State Farm as well... $269 for 4m in coverage (when combined with home & auto policies)

There was never any hesitancy from the agent in writing this coverage, although I seem to recall that they needed to bump my auto liability up to a slightly higher level & I had to wait several days for underwriting approvals on their end.

My theory (right or wrong) is to get enough of an "umbrella" to cover the majority of your NW. Umbrella policies would be cheap at twice the cost... so why not?

Edit: Regarding the "Making you a target" argument. My understanding is that, while your insurance coverage is "discoverable" by an attorney... so is your approx NW. This, combined with your lifestyle (large house, expensive toys, etc.) and the severity of the injury will likely make you a more visible target than the policy coverage.

Also, keep in mind that an umbrella policy is meant to cover both plaintiff awards AND legal fees. Without enough coverage, you may still be on the hook for paying the attorneys.

 

[TOOLMAN]

I'm with State Farm as well... $269 for 4m in coverage (when combined with home & auto policies)
.

Thanks for all the advice. Decided to go from 1M to 5M with State Farm. Must wait two weeks for coverage to be binding. Not cheap for me, $1,100 / yr but as a % of NW it's acceptable. AS I approach ER it should be less as I intend to sell, 1 car, 1 motorcycle, and 1 airplane. Probably buy an RV and will be out of my higher profile C__ level public company j#b which I think is the reason for the high rate.

 

[KingB]

State Farm quoted us for $300/year for 1M and $450/year for 2M which seems to be higher than of the premiums mentioned on this thread. On the quote, it says that DW and I are covered for liability.

Are the premiums you are paying now cover both you and your spouse?

 

[Seeking Hobbes]

State Farm quoted us for $300/year for 1M and $450/year for 2M which seems to be higher than of the premiums mentioned on this thread. On the quote, it says that DW and I are covered for liability.

Are the premiums you are paying now cover both you and your spouse?

I can't speak for others... but my situation is pretty simple (liability-wise). I'm single, no kids, one car. While I do own a wood-frame house with a pool... I can't imagine any other "red flags." Still, I'm no insurance expert.

While it's several years old, here's an interesting (if not frightening) article that might help.

http://www.nytimes.com/2008/03/18/business/businessspecial3/18insure.html?pagewanted=all&_r=0

They explain rate quotes like this...

Around the country, at companies dealing with rich clients, the first million in coverage is usually the most expensive, at perhaps $150 to $300 annually, said Jeanne M. Salvatore, a specialist in home insurance at the Insurance Information Institute. Each additional million in coverage, she said, could cost around $100 to $125 annually. The rates per million decline as coverage increases. But at $10 million in coverage, the rate jumps because few customers buy that much, meaning insurers can spread their risk over only a relatively small group of customers.

The situation is often the reverse for the many insurers who specialize in middle- and lower-income clients. Often their rates shoot up after the first million in umbrella coverage because they have only a small group of buyers of umbrella policies larger than $1 million. A smaller pool of customers creates more risk per dollar of premium for an insurer, so the insurer charges more for the coverage.

One homeowner said that for a $3 million umbrella policy from a middle-income insurer, the second and third million in coverage cost him 3.5 times the rate for the first million of coverage.