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No pension, living off investments. Much of what I have is not protected and subject to judgement.
If my calculation/"rule of thumb" isn't correct, what is the right way to determine the proper amount of coverage? Telling someone the rule of thumb isn't good without providing an alternate isn't helpful.
I was thinking through that over my coffee when I saw there were more posts to this thread, but before reading your post.
My take on it is that there really
is no good answer. And I think that is why a
meaningless rule of thumb exists. I'd imagine if we looked at the average Umbrella policy owner (not the outliers that might have been engaging in risky behavior, but still within what the ins co would defend), the the odds of them getting sued for a large amount are really low. And then we'd need to look at the ranges of settlements, and maybe decide we want an amount to cover 90% of that range, 95%? Since many are settled out of court, this data might not even be available.
Your insurance person could debate this with you for months, running numbers and scenarios, and it still would pretty much be a crap shoot. Same reason we see the articles that you'll need 80% of your income in retirement. It's not meaningful, but it's an easy answer, so they go with it.
edit/add: And then we'd need to compare those settlements with similar cases where people did not have umbrella coverage. Were the settlements low enough to justify the cost?
But I always feel we should be honest with ourselves, so we best understand the choices we do make. And I think many people kid themselves, or lull themselves into a false sense of security by thinking they really have "net worth insurance". But they don't. They have $1M or $2M or $10M or whatever, of liability insurance. It has nothing to do with net worth, and it isn't helpful (and maybe hurtful) to think of it in those terms.
OK, the succinct version (do 'they' still do the 'tl/dr' thing - too long, didn't read?): I don't have an answer, and maybe you don't think that's helpful, but substituting a meaningless-non-answer can be harmful. So understand it for what it is.
-ERD50