Increase umbrella coverage to $ 5 M?

[MrLoco]

Would appreciate input from those in a similar situation. We currently have investable assets at $4.5M , house is worth about $ 250,000....no debt....so net worth approaching the $5 M mark. We currently have an umbrella policy for $ 4M. The maximum my insurance will cover with an umbrella policy is $ 5M which is the norm for most companies. (Travellers Insurance will offer $10M.....but do not want to go through the hassle of changing insurance companies at this point).

If the markets are kind in the coming years , our net worth could climb well above $5M. What would you do?

1) Go ahead and increase umbrella to $5M.

2) Stay at the $4M coverage as I have read that for each additional $1M in coverage the odds of being sued are less. ( For example....more likely to be sued for $1M versus 2 M, 2M versus 3M, etc.).

Currently umbrella coverage costs a pretty penny as both adult children are still on auto policy.

3) Wait until net worth crosses the $6 or $7M mark and then increase the umbrella coverage to $5M. Should be cheaper anyway as adult children will be on their own auto coverage.

And beyond the $5M mark? I guess you just hire a good attorney and cross your fingers if you are ever sued for an amount beyond your umbrella coverage?

Would appreciate any input....especially those that have assets well beyond $5M. Thank you.

 

[bingybear]

Just a dumb question, what does your net worth really have to do with the amount of insurance you carry. If you cause a massive accident, what prevents the sum of law suits to be less than 5MM.
The amount you want to insure for is the value of loss you want to protect against. Even if you only had 1MM, you might want to protect up to 2MM. If you get sued successfully for 2MM in this case the insurance company pays 1MM and you'd pay the other.

So what risks to you see that you have? OK, you have grandkids on your auto... that is not enough info to know how much of a risk that is. Are you responsible for them? are they minors? What other things do you do that could put you at risk?

I've had insurance agents tell me that you should have anywhere from 1x net worth to 3x net worth. I think part of that is just wanting to sell more.

I don't think this is purely a net worth game, but how much do you insure so the insurance company will fight for you in court.

If you have a good reason the insurance should be net worth based, I'd like to hear it so I could learn.

Any of us could have a bad accident. Some may do things that increase the risks.

edit:: -- not that I qualify for your asset level...

 

[Another Reader]

I might consider moving the adult children to their own auto policies now and assisting them in paying for them. I would not want to have my liability insurance paying for damages they do. I would up the umbrella to $5MM and start shopping for the $10MM policy. The cost will decrease once the kids are off the policy.

 

[MichaelB]

When our adult children were living at home the insurer required us to include them in the policy. Something along the lines of "all drivers living in the same household".

 

[2017ish]

What portion of your "investable assets" are in ERISA protected accounts? In our case, most everything is protected in the event of bankruptcy. Thus, I don't see the need to get more than 5 million umbrella, particularly as we'll be retiring, which would make bankruptcy a less nasty option if it becomes necessary to protect the IRA accounts that are derived from employer plan rollovers.

With respect to your adult children, agree with Another Reader--with a caution if they still live with you. Depending upon your state, there are legal doctrines that could put you on the hook for their negligence liability if they live with you and operate a vehicle for the (very liberally construed) benefit of the household.

 

[Fedup]

I did increase the liability protection on the car insurance policy, up to $1 million. It was enough money for the lawyers to go to bat for you.

 

[Dash man]

My underlying auto and homeowners policies have a $1M limit, plus a $5M umbrella policy brings my liability coverage to a total of $6M. It's still under my total net worth, bet we decided it is sufficient. The insurance company will get some pretty good lawyers to protect from paying out $6M.

 

[Fedup]

This is why umbrella insurance is pretty cheap, it's like $800 for $5M per year. But they want you to go up to the highest amount in car liability for that reason.

 

[rdy2go]

Umbrella policies are pretty cheap for the coverage they afford, especially if it covers uninsured/underinsured motorist coverage. I would go to the $5 mil limit since you have the assets to protect but that also depends on whether that money is sitting in protected accounts and whether your state protects IRA's, 401K's, etc. If the kid's cars are titled in their names then I would recommend moving them to their own policies. If the cars are titled in your name then they need to be covered on your policy. If you need to go over $5 mil, your agent can get you an "excess indemnity" policy to go over your five million umbrella. A few companies will write larger umbrellas like Travelers as you said and also Chubb, who likes to write large homes and high limits for people with greater than average assets.

 

[MrLoco]

Thanks for all those who responded. After doing some research, I discovered that my state protects a primary residence (up to $300k) from creditors pertaining to bankruptcy OR non bankruptcy litigation. Also in addition to 401K plans being exempt from litigation claims, my state also exempts Trad. IRA's and ROTH IRa's. For us this would leave about $2.5M "exposed." So actually we are overinsured when it comes to umbrella coverage.

 

[Golden sunsets]

As long as you understand MrLoco that the 4MM does not actually protect your $2.5MM exposure. It only protects you from the first 4MM that a court awards to the injured partie(s). There is nothing to prevent the injured party from suing for a sum larger than your liability coverage.


Sent from my iPad using Early Retirement Forum

 

[audreyh1]

This is why umbrella insurance is pretty cheap, it's like $800 for $5M per year. But they want you to go up to the highest amount in car liability for that reason.

Ours does not require the max limit on vehicle liability. $500K vehicle and $300K homeowner liability coverage satisfies the requirement.

We also pay extra for uninsured/underinsured motorist coverage. Around here I sometime suspect half the folks are driving without a license/insurance, and most are certainly way underinsured!

 

[MrLoco]

As long as you understand MrLoco that the 4MM does not actually protect your $2.5MM exposure. It only protects you from the first 4MM that a court awards to the injured partie(s). There is nothing to prevent the injured party from suing for a sum larger than your liability coverage.


Sent from my iPad using Early Retirement Forum

Agreed Golden sunsets. However, what is the alternative? My insurance company will only insure up to $5M anyway and I am already at the $4M mark. If, God forbid, I am sued for say $10M; I would just have to hope the insurance company would get the other party to settle for far less while also retaining an attorney myself to help reduce the judgement. My wife and I and adult children also covered under the policy have always been very careful, responsible drivers. Never a speeding ticket, DUI, etc. plus we have no pool, trampoline, ATV's, jet skis, boats, snow mobiles, etc.

The only other alternative I see is switching all my insurance needs over to say Travellers and getting a $10M umbrella policy.....which from my research would cost an outrageous annual amount and just on the surface seems ridiculous.

But I am open to all reasonable suggestions.

 

[bingybear]

I asked similar questions as Golden Sunsets really in the thread. I guess the real question is what level of coverage would you be satisfied? Personally I don't see a strong link of assets to insurance after a certain point. You could always be successfully sued for more than your insurance plus assets.
The likelihood of having a successful case above your insured amount shrinks as your insurance level goes up. The question is where is your comfort level? From my experience if you max out umbrella insurance, the insurance company has access to excess insurance. This is another insurance policy.

I don't totally understand the concept of insuring up to the limit of net worth. It does not protect those assets directly. It protects your liability up to that limit. At some point one must assume that they have protected against most likelihoods and call that enough insurance.

I still don't see why having $5MM vs $4MM means you change your level of insurance.

 

[CaliKid]

I will never understand people talking about umbrella and net worth as they are not related. Umbrella is simply to protect whatever you have which could include simply future paychecks for people that are still working or any other asset that can be levied against. It's more obvious for a person with assets but everybody should have $2m, $3m or more of umbrella. It's cheap insurance. If anything a person with high net worth could say they don't need an umbrella as they could self insure. I would never make that argument myself but I could see the logic.

 

[GTFan]

It's more obvious for a person with assets but everybody should have $2m, $3m or more of umbrella.

Totally disagree with this line of thinking for all the asset exclusion reasons mentioned here. This is not a cut and dried answer.

I'm only carrying 1mil because I want the insurer to defend me and over half of our assets are protected. That's all I need and good enough for many here.

 

[Car-Guy]

Just a dumb question, what does your net worth really have to do with the amount of insurance you carry. If you cause a massive accident, what prevents the sum of law suits to be less than 5MM.

I've had insurance agents tell me that you should have anywhere from 1x net worth to 3x net worth. I think part of that is just wanting to sell more.

I don't think it's a dumb question at all. Maybe that's because that's the way I look at it. My umbrella policy is well under my NW too.

If you have 5m in NW and a 5m umbrella policy and get sued for 10, you "could" be financially wiped out. etc....

 

[calmloki]

I like the idea that a high liability limit gets an insurer to unleash it's most vicious law dogs. Crosses my mind though that said lawyer has primary allegiance to the employing insurance company and secondary allegiance to me. How hard will the lawyer work to prove an accident is not an insured event and that the insurance company is off the hook while I, the insured, am truly responsible.

 

[45th Birthday]

We have $10 million in umbrella coverage, a bit over half of net worth. Getting more would require too many hoops (reinsurance) and cost more. Of course we look at it in conjunction with net worth because that is what we are trying to protect. Just like insuring a piece of jewelry.

That said, several have posted about being sued for an amount. This isn't the correct way to look at it. Anyone can sue anyone at any time for any amount for any reason. The key is whether there is a payment in the end. The larger the policy, the better defense you will receive, and the more likely the end result will be under your limit.

 

[bingybear]

We have $10 million in umbrella coverage, a bit over half of net worth. Getting more would require too many hoops (reinsurance) and cost more. Of course we look at it in conjunction with net worth because that is what we are trying to protect. Just like insuring a piece of jewelry.

That said, several have posted about being sued for an amount. This isn't the correct way to look at it. Anyone can sue anyone at any time for any amount for any reason. The key is whether there is a payment in the end. The larger the policy, the better defense you will receive, and the more likely the end result will be under your limit.

I agree with your second paragraph.

I don't see the "Just like insuring a piece of jewelry". If you are sued successfully (they win) for what you are insured + net worth, they don't give restore your net worth. If it was jewelry that was stolen, they would have given you the insured $ to replace it. Also when you insure jewelry you have an appraisal to guide you as to replacement costs and amount to insure.

For umbrella insurance you are trying to cover an unknown event that you'll be responsible for. It will protect for covered events up to the limit of the insurance (including primary policies). Unlike jewelry you don't have a good estimate upfront. You don't know if you'll loose control of your car and plow through a crowd of pedestrians and mam an kill many people or whatever bad event you can imagine. You are insuring against a risk that is not well define instead of insuring a well defined and valued item.

 

[Dash man]

I believe the idea of having an umbrella policy to cover your net worth is a rule of thumb because in the discovery phase of a lawsuit they will find out what assets you have and will likely go after that amount. There is no requirement nor should you disclose the amount of insurance coverage you have. Maybe some lawyers out there can confirm or correct this.

 

[45th Birthday]

I agree with your second paragraph.

I don't see the "Just like insuring a piece of jewelry". If you are sued successfully (they win) for what you are insured + net worth, they don't give restore your net worth. If it was jewelry that was stolen, they would have given you the insured $ to replace it. Also when you insure jewelry you have an appraisal to guide you as to replacement costs and amount to insure.

For umbrella insurance you are trying to cover an unknown event that you'll be responsible for. It will protect for covered events up to the limit of the insurance (including primary policies). Unlike jewelry you don't have a good estimate upfront. You don't know if you'll loose control of your car and plow through a crowd of pedestrians and mam an kill many people or whatever bad event you can imagine. You are insuring against a risk that is not well define instead of insuring a well defined and valued item.

Agreed that you don't know what a liability loss might be, but you are insuring a loss up to the limit on your policy, just like with a piece of jewelry. So if my wife loses a $15,000 ring, I don't have to come up with the $15,000 to buy her a new one. Similarly, if I get hit with a judgement and costs of $4 million, I don't have to dip into my new worth to cover that.

True that if you are eventually liable for an amount that exceeds your liability limit + net worth your net worth isn't restored. But, the first $X, including defense costs, is paid by someone else. Using the jewelry example again, if my wife's ring insured for $15,000 is lost and costs $25,000 to replace, then I'm going to be on the hook for the balance. You can quibble about the need to pay the judgement versus the need to replace the ring, but if you do you don't know my wife...

 

[marko]

As long as you understand MrLoco that the 4MM does not actually protect your $2.5MM exposure. It only protects you from the first 4MM that a court awards to the injured partie(s). There is nothing to prevent the injured party from suing for a sum larger than your liability coverage.
Sent from my iPad using Early Retirement Forum

It would seem to me that a $5MM+ settlement would be the result of some really extreme negligence.

Just because you're worth $5MM doesn't mean that a settlement for that amount would be granted for a fairly run of the mill liability.

"...I'll sue you for all you're worth!!" (Funny, I thought I was worth more than the $100K you got).

ICBW!!

As my lawyer always says "Anyone with 50 bucks can sue you, it doesn't mean they'll win"

 

[Ready]

I have a $5M umbrella policy through Allstate. I'm not sure I completely understand the relationship between net worth and coverage limits, but I was required to provide documentation that I was really worth at least $5M before they would issue the policy. They wanted a statement from my accountant, but I don't have one, so I just provided a statement on my own stating that my assets exceed $5M.

 

[sengsational]

As my lawyer always says "Anyone with 50 bucks can sue you, it doesn't mean they'll win"

And even if they did win, they'd simply have a judgement, no money.