Umbrella insurance levels while ER ?

[cute fuzzy bunny]

His canned advice may have been appropriate for the average retiree who has a small nest egg, a paid off house and social security income.

Might not be as good for someone with $2M in the investment account, a paid off house, and social security income...

Just determine your own level of risk tolerance vs the cost. Not losing everything because you ****ed up once for a second is usually worth a couple of hundred bucks a year. Most people pay more than that for a couple of months cell phone service...

 

[Finance Dave]

Then you'd be pretty much wrong again

The cost is low.

We have $2M in coverage. I'd have to go look for the exact number but it costs about $200 a year on top of about $200 extra a year total over our house and three cars as you have to carry a minimum liability on your home and cars thats higher than what most people carry.

While I agree it's relatively inexpensive, we should give people the entire story. We should mention that to have such an umbrella, most companies require you to increase the limits you have on auto policies. This varies state by state, but in Indiana where I live, I had to double the state minimum protection on my auto policies to get the umbrella in place. Thus, the overall cost of the umbrella should not be considered to be only the policy, but also the incremental cost to the auto policy.

Dave

 

[cute fuzzy bunny]

Well noted, although I mentioned in that in the portion of the post you quoted from last year.

For me it was about $50 extra per car for 3 cars and about $50 extra for my house to bring the liability up to the required level...$200 plus $200 as mentioned.

You're also new and dont realize that the fellow I was responding to was allegedly a wife beater who married his wife for her paycheck, then immediately divorced her when she got cancer. He also gave bad financial advice on a regular basis.

Would you like to see a recent news article where he's being interviewed in the front yard of his great value waterfront property up to his knees in the flood waters? It seems that this was problematic since he bought a home on a river in a floodplain and had no flood insurance. Funny, since he couldnt stop telling us what an expert he is in real estate...

 

[haha]

I think that if one is retired and is not sure that all sources of his income are invulnerable, he really should not consider going without maximum liability limits on home and car anyway. And to me, no way would I go without an umbrella.

We often mistakenly weigh only the frequency of an event- like hitting and killing or maiming a young neurosurgeon with 6 kids. We also ought to look at what this event would do to our financial picture should it occur. If it costs $200 per year for 40 years to look after this risk, to me that would be $8000 well spent. Our conscience might be in better shape too.

Ha

 

[Porkfat]

Porkfat

In my opinion, Umbrella insurance is a necessary budget item for ER. You rpobably have a pile of assets that are not subject to state homestead protections and for a relatively small sum, you can assure that even if you are sued, there are excess funds for both settlement and attorneys fees. I spend about $300 per year for $2million in umbrella coverage and would not be caught without it. Check with the agent who handles your homeowner's insurance - it can often be purchased as an adjunct to your homeowner's policy. It should also provide excess coverage for your work on charitable boards, since you are now volunteering instead of working! Check it out, but I believe it is a necessity at a nominal cost.

 

[cute fuzzy bunny]

hitting and killing or maiming a young neurosurgeon with 6 kids

Doesnt even need to be that exotic. Taking my kid trick or treating last night, I observed that my next door neighbor had left a hose running down and diagonally across the steep set of stairs to his front door. My wife also noted his fresh oxygen tanks next to the front door "Knock those over and damage the valve, and its a rocket..."

We mentioned both to him. He seemed to have not really thought about the implications and said he'd pull the hose in and take in the tanks. A couple of hours later when trick or treating was winding down, I peeked over and saw the hose and cylinders still in position...

 

[JohnDoe]

I guess I should look into this insurance?

My home and car insur are with the same firm. I'm 38 and plan to retire at 50. I have 300k in retirement savings and 500k net worth.

Should I consider a $1M policy or wait until my net worth is $1M?

 

[samclem]

Taking my kid trick or treating last night, I observed that my next door neighbor had left a hose running down and diagonally across the steep set of stairs to his front door. My wife also noted his fresh oxygen tanks next to the front door "Knock those over and damage the valve, and its a rocket..."

Sounds like Gabe could have made you guys a fortune. If he'd taken one for the team on your neighbor's steps, you'd have another Lexus by now. Put that boy to work!

 

[ziggy29]

I guess I should look into this insurance?

My home and car insur are with the same firm. I'm 38 and plan to retire at 50. I have 300k in retirement savings and 500k net worth.

Should I consider a $1M policy or wait until my net worth is $1M?

Sounds like you have enough to get at least $1M already. Judgments aren't necessarily limited to your net worth. If a judgment exceeds your net worth (or at least the assets which aren't judgment-proof by law according to your state), they can still order you to pay up from future income.

Plus, buying an umbrella is like having a strong legal team "on retainer." When someone is trying to get $5,000 out of your insurer, they aren't likely to fight hard since it might be more costly to fight than pay up. But when hundreds of thousands are on the line, their lawyers will be on it.

One thing to remember about an umbrella is to not tip your hand and let the party suing you know you have it. If they know there are deep pockets backing you, they'll try even harder to get more out of you.

 

[cute fuzzy bunny]

Its got nothing much to do with asset levels. If you own a house and a car you're a target for someone who doesnt. You may find the roles reversed quite quickly.

 

[scrinch]

Just had a business chat with my lawyer and I asked him his opinion if I should keep my 1m umbrella policy. He said keep it until you retire...

Why would he say that? The way I look at it, a liability policy is primarily to cover your owned assets, and as such you should keep the policy until your assets are no longer worth covering (or your lifestyle no longer presents significant risk to the public). On the other hand, a life insurance policy is primarily to cover your future earned income, and as such can be dropped (or greatly reduced) when you retire.

 

[tryan]

Problem with umbrella coverage was not increasing other coverage ... they won't cover people with 6+ rentals. Sooo it's an S corp, trust and commercial liability for us.

Been sued plenty ... 4 times. Never hit personally. They want to settle with the liability policy holder. Some were deflected because the home address - and phone - is not publicly available (this will deter the lazy lawyers). Would take the palintif lawyers letters and fax them the liability company and forget about it. Never contacted again ... expect most suits were dropped. Was never summoned to court.

 

[samclem]

Why would he say that?

The advice doesn't make sense to me, either, unless he was just looking at it from the standpoint of exposure ("when you are retired from your job as an independent consultant certifying safety devices for nuclear power plants, you can drop the policy because you won't be working and your exposure will be reduced"). Regardless, probably not good advice.

 

[In-control]

I just upped mine, 2 cars + motor cycle. Cost me $369/yr for $2M coverage. Thanks for bring this up.

 

[JohnDoe]

I just got quotes - $1M $136/yr and $2M $204/yr.

 

[brewer12345]

I've started to up my umbrella $1MM every year or two until I get to my carrier's limit. My net worth keeps rising and my auto insurance keeps dropping, so I figure its a wash. Bumping to $2MM this month. We'll see at the next renewal.

 

[Rocket_J_Squirrel]

The Umbrella Policy - A good thing!

Umbrella insurance is definitely a good thing to include in your budget. Most people can get by with a $1MM policy and ratchet up from there depending on your asset base and potential risks. Even if you only have $500k in assets, a $1MM policy would be the minimum you would want.

Typically, you get the best deal from your auto or home owner’s insurance company but Umbrella’s are available from Independent Insurance agents that may not be the same insurance company that issued your auto or home owner’s policy. I would always start with your regular insurance agent in pursuing an Umbrella policy. Do some research on the internet to learn more about the Umbrella policy so you can ask your agent pertinent questions.

Others have pointed out that you do have to raise the liability limits of your regular auto and home owner’s insurance policies to the levels specified by the level required by the insurance company issuing the Umbrella policy. This is true!

The other item to consider is the number of risks you will have to cover in addition to your home and auto. You should put every auto and motorcycle that you have insured on the Umbrella policy, any vacation properties you own, and any underage drivers that are still in your household. Each of these items when added to your Umbrella will raise the premium without raising the policy limits (i.e. $1MM of coverage) – you are simply covering more risks under the Umbrella policy limits.

This insurance is very cheap in relation to the coverage, protection, and peace of mind such a policy will give you. As always, READ THE POLICY and understand what you are covered for and what you aren’t.


Another insurance item to consider is that many of you have family collections of stamps, art, jewelry, furs, coins, baseball cards, guns, figurines, etc., that ARE NOT covered by your regular home owner’s policy above a certain amount. You need an ‘inland marine’ policy or rider to cover such items. So don’t be afraid to ask your insurance agent questions about your coverage, that’s what you are paying them for in addition to risk coverage – make them earn their commission!

Great discussion on this subject by the respondents on this board! RJS

 

[free4now]

I'm still not convinced that umbrella insurance is worth the price.

Umbrella insurance can be relatively costly. Imagine someone living on $40k/year. Paying $200/year for umbrella insurance is a full 0.5% of the annual budget. It's not quite the same level of spending as the latte-a-day that we love to make fun of, but it's getting into that ballpark.

Doing some experiments with Firecalc for someone spending $40k/yr of a 1m portfolio, it looks like adding $200 of umbrella insurance expenses per year decreases the lifetime survivability by about 0.1%.

That's a chance of about 1 in 1000 that you could get wiped out because your lifetime umbrella insurance premiums lowered your portfolio value enough that it couldn't survive a bear market. That's a real risk that's clearly worth protecting against. One way of protecting against it is not to buy umbrella insurance but rather keep that money in your portfolio.

I can't find any concrete numbers on how often umbrella coverage saves people, but my gut guess is that a lot less than 1 in 1000 umbrella policy holders are saved from financial ruin by their umbrella policies.

 

[Sarah in SC]

I can get up to a million on my homeowners policy, but have just $300k now. Since one of my foster dogs bit a random child at an adoption event 2 weeks ago, I'm thinking that I have more exposure than I originally thought. Sigh.
Thank god the parents weren't the litigious sort and wouldn't take my name, any money, or the rescue group's information (a 501c3). Still scary, though.
I'm going to bump it up, but probably just to the $500k mark. Interesting to see how other folks feel about it.
Sarah

 

[samclem]

Doing some experiments with Firecalc for someone spending $40k/yr of a 1m portfolio, it looks like adding $200 of umbrella insurance expenses per year decreases the lifetime survivability by about 0.1%.

That's a chance of about 1 in 1000 that you could get wiped out because your lifetime umbrella insurance premiums lowered your portfolio value enough that it couldn't survive a bear market. That's a real risk that's clearly worth protecting against. One way of protecting against it is not to buy umbrella insurance but rather keep that money in your portfolio.

FIRECALC is great . It is a wonderful tool. But does anybody believe it (and the underlying assumptions and data sets) is precise enough to be useful in this context? That the projected portfolio survival rates are accurate to within .1 percent? To what confidence level? I think we are in the "measuring jello with a micrometer" mode at this point.

Moreover, the person buying the umbrella policy can choose to cut expenditures somewhere else and keep withdrawal rates the same. To me, that's the more useful way of considering these options: "If I keep my withdrawals the same, this umbrella policy will cost us 6 dinners at Outback per year (or X rounds of golf, etc)." Does the increased peace of mind and protection of the nestegg make up for the decrease in "fun to do" expenditures?

 

[Goonie]

I have a $1M Umbrella Policy that costs $155 per year. I have the umbrella, auto, house, and 'personal articles' policies all with the same insurer. I had to raise (slightly) my coverages on the auto policy. However, when I consolidated all of these policies under one insurer, I received multi-policy discounts which more than made up for the increased coverages AND the premium for the Umbrella policy.

Even if discounts hadn't covered it, I still would have bought the Umbrella. Heck, $1M worth of peace of mind for only 42¢ a day.......for my money, that's a pretty reasonable deal!

 

[MikeD]

Heck, $1M worth of peace of mind for only 42¢ a day.......for my money, that's a pretty reasonable deal!

Even though I have retired from my dangerous hobbies and have a lot less exposure to getting sued the main value we get from our umbrella policy is peace of mind. That's sort of subjective but it sure makes us feel more secure, which is very valuable to us.

Mike D.

 

[haha]

Even though I have retired from my dangerous hobbies and have a lot less exposure to getting sued the main value we get from our umbrella policy is peace of mind.
Mike D.

If you talk to an agent or broker she will explain that by the far the biggest liability exposure that most of us have is driving a car. The consumer type umbrellas that I am aware of don't cover professional exposures. I added an extra dwelling to my policy and the premium went up 2% or so. I subtracted an extra car and adult driver and the premium was reduced by a third.

Ha

 

[Gumby]

My $1MM umbrella policy is $258 per year. I think it is money well spent. My home and auto policies are with the same insurer. As I recall, there was some tradeoff between the rates for various combinations of underlying insurance and the umbrella (i.e. - if I upped the limits on the auto policy, the umbrella would be less). I kept asking for the various combinations and chose the lowest total cost.

 

[cute fuzzy bunny]

Hmm, a long shot at having an extremely small portfolio shortfall that you could control and mitigate, or a long shot at being completely wiped out and having no control over the loss.

Raising your deductibles will offset the additional liability. In fact I think in the long run my insurance with a 1000 deductible on the cars and 5000 on the house plus $2m in liability was cheaper than 500/1000 and 250/500 liability on the house and cars.

Self insure a little at the low end, let the insurer take on the big risk at the upper end. Same cost.