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Paying off mortgage - do I need umbrella insurance now?
Old 11-22-2010, 07:43 PM   #1
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Paying off mortgage - do I need umbrella insurance now?

DW and I are about 30, DINKS, combined income ~$250k in Texas. We are getting ready to pay off the mortage and I'm wondering if this makes us a target for lawsuits. If so, should we do anything to protect ourselves, such as:

a) Purchasing an umbrella insurance policy?
b) Taking out a home equity line of credit?
c) Put the house or other assets into a trust of some sort?

Current auto policy coverage is $300k combined single limit per occurrence and the house policy is $300k per occurrence for liability. The auto and home policies are with different carriers - do I need to consolidate before I can get an umbrella policy?

The last thread I saw on this was from 2009 so I'd be interested to know what people are paying per $MM of umbrella coverage. Our balance sheet looks like this:

$150k Cash and taxable investments
$170k Retirement accounts
$220k House
($40k) Student loans
= $500k net worth
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Old 11-22-2010, 08:09 PM   #2
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Soup, I have always been an underinsurer, but two things combined to make me rethink my insurance coverage--a big party we have every year and a new (to us) boat.
I guess I think in terms of possible liability events and finally bit the bullet on a modest umbrella policy. We, too, have a paid for house, not that owning it outright changes our potential liability.
I think the costs of liability coverage depend on what all you own. Like for us, we have the house, the cars, the motorhome, and the boat all with regular $300k liability, then the umbrella brings it up to $1MM.
Considering I spent all my teens and twenties with our state's minimum coverage of $25k in liability, this is a huge leap for a reformed underinsurer.
I don't know if this helps, but I got mine from something called (don't laugh) PersonalUmbrella Program for Agents & Brokers through my usual broker.
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Old 11-22-2010, 08:11 PM   #3
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I think you should have an umbrella policy whether or not you pay off your house. It's pretty cheap if you're not insuring young drivers too. I have 2 million, thinking about raising it to 5 million. I added earthquake insurance when I paid of my house
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Old 11-22-2010, 09:45 PM   #4
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OP - I'm in a similar place as you. I wouldn't think about going without it. My $1M umbrella costs me $308/year. We're thinking of upping it to $2m
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Old 11-22-2010, 09:53 PM   #5
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Of course in Texas the house is protected by the unlimited homestead exemption. So you have at risk about 150k since retirement assets are also protected in BK.
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Old 11-23-2010, 12:27 AM   #6
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I pay right at 1000 dollars for 2 million coverage. But that's my wife and I, home, rental, 4 cars, 2 motorcycles, and most expensively, 23 and 21 year old drivers. We split the cost. It's well worth it. My kids are making bank and also have a lot to lose.
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Old 11-23-2010, 01:38 AM   #7
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$159 for 1mil coverage with State Farm, who is also our home and auto insurer.
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Old 11-23-2010, 08:04 AM   #8
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Originally Posted by soupcxan View Post
DW and I are about 30, DINKS, combined income ~$250k in Texas. We are getting ready to pay off the mortage and I'm wondering if this makes us a target for lawsuits. If so, should we do anything to protect ourselves, such as:

a) Purchasing an umbrella insurance policy?
b) Taking out a home equity line of credit?
c) Put the house or other assets into a trust of some sort?

Our balance sheet looks like this:
$150k Cash and taxable investments
$170k Retirement accounts
$220k House
($40k) Student loans
= $500k net worth
The issue is that the plaintiff's lawyer is going to sue you based on your gross worth, not your net worth. They don't have to care whether or not you can pay your other debts, although I'd never heard of a home exemption before. I wish Hawaii would look into that...

Yes you should take out an umbrella policy, and for all of your worth-- what you'd have to come up with if you drove your car through a school bus full of lawyers' kids. I think after the first million of coverage the umbrella insurer rounds it up to the next million. Most of the insurers will base their coverage on your home/auto coverage, which lets you play the game of tinkering with your limits & deductibles to come up with the minimum price. Unfortunately this is a non-linear three-variable equation.

A HELOC is always a good thing to have, especially if it's free of closing costs. PenFed frequently runs HELOC specials with zero closing costs, although you have to have the account set up for two years. We use ours as an emergency source of cash, although I hope we never have an emergency that big.

My impression of trusts is that they're great for avoiding the expense of probate and its attendant publicity. However if you're trying to shield your assets from liability then the plaintiff's lawyers have already figured out how to "pierce the veil" of whatever trust maneuver your lawyer can design, although it can get awful expensive to set up various maneuvers.
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Old 11-23-2010, 08:11 AM   #9
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what you'd have to come up with if you drove your car through a school bus full of lawyers kids.
This might be the best (or worst) imaginable scenario you could have dreamed up to make me worry about my liability coverage ever, Nords!
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Old 11-23-2010, 10:11 AM   #10
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We also have been carrying an umbrella policy for about the last ten years, $1m and thinking of raising it to $2m.

As I put it to our insurance agent during a discussion about uninsured drivers: "The only people who need insurance are those who have something to lose."
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Old 11-23-2010, 11:00 AM   #11
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We carry $1mm umbrella which sits above our Auto and HO limits of $500,000.
Cost for umbrella is $152 but going up to $293 because of a newly minted teenage driver (our son).
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Old 11-23-2010, 11:02 AM   #12
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This might be the best (or worst) imaginable scenario you could have dreamed up to make me worry about my liability coverage ever, Nords!
This public service announcement has been brought to you by the National Liability Insurance Association through a cooperative alliance with the American Bar Association...
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Old 11-23-2010, 12:26 PM   #13
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Perfect, Nords!
DH has a buddy who is a big-time liability lawyer with school-age triplets. I shudder to imagine what goes through the mind of the person with car-pool duty on those kids every week!
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Old 12-03-2010, 04:16 AM   #14
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An umbrella insurance coverage is always a good idea, no matter what the situation. Get it from the same company that does your home and car insurance. Go with a minimum of at least $1 million.
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Old 12-03-2010, 06:49 AM   #15
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Well I guess everyone else has already weighed in but yes, I have a $2MM umbrella which used to cost about $500 a year but doubled with my 17 year old driver son...

Well worth the peace of mind it brings.
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Old 12-03-2010, 10:12 AM   #16
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Well I guess everyone else has already weighed in but yes, I have a $2MM umbrella which used to cost about $500 a year but doubled with my 17 year old driver son...

Well worth the peace of mind it brings.

Boy, that is alot of premium. When I inquired what a $2mm umbrella would cost, the premium was around $600 (with a 17 yr. old driver son.
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Old 12-27-2010, 09:19 PM   #17
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I think you should have an umbrella policy whether or not you pay off your house. It's pretty cheap if you're not insuring young drivers too. I have 2 million, thinking about raising it to 5 million. I added earthquake insurance when I paid of my house
Hm... this is getting me to think that we should get an umbrella policy as well. We do have a paid off home and $550K in nest egg so far (net worth excludes our home value). We're in CA and earthquake insurance I hear is very expensive here, but I've been reading some getting it. We're in Southern California near the Westchester (LAX) area.
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Old 12-28-2010, 10:14 AM   #18
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Of course in Texas the house is protected by the unlimited homestead exemption. So you have at risk about 150k since retirement assets are also protected in BK.
this is true. IIRC, in TX you have up until the date of judgment to transfer assets as well. have your lawyer check up on that...and while they can't take your home from you, I do believe they can file a lien.

but yes, get a brolly...
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Old 12-28-2010, 01:55 PM   #19
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this is true. IIRC, in TX you have up until the date of judgment to transfer assets as well. have your lawyer check up on that...and while they can't take your home from you, I do believe they can file a lien.

but yes, get a brolly...
Yes, in the general case, retirement accounts, insurance contracts (including annuities) and homesteaded personal residences are generally protected from seizure under Texas law. Exceptions may exist if the suit results from criminal activity or criminal negligence, as I understand it -- but other than that Texas law should protect these assets already. So in the OP's case only the first $150K in savings and taxable investments would seem to be at risk of seizure.

I believe Oklahoma and Florida law are similar; these three states have what are generally considered the strongest asset protection laws in the country.
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Old 12-28-2010, 05:14 PM   #20
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So is this something you want to get only if your house is paid off, or almost paid off? I have never heard or known of anyone losing their assets because of a law suit. Wouldn't they have to show negligence to take things away from you?
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