Yet another Umbrella Policy Topic

[FinanceDude]

One thing I didn't see mentioned. Generally the FIRST million of umbrella is the most expensive. Each million you add is about half the cost of the first million.

My insurer was "running a deal" on umbrella upgrades, so I went from $2 million to $5 million for only 25% more than I was paying, so I guess I am "overinsured"..............

[WanderALot]

Before I signed up for my $1M umbrella policy, I had to increase my liability limits on my auto policy to $500k. Now, my understanding of the policy limits are that if I were to get in a car accident that had damages, the first $500k would be covered by my car insurance policy and my next $1M is covered by my umbrella? If this is the case, isn't my effective liability coverage $1.5M, provided of course that the damages are caused while I was driving.

[Martha]

Yes.

(Edit, it appears that many insurance policies do in fact treat the underlying coverage as the deductible and deduct it from the total coverage)

[WanderALot]

Thanks Martha! For those people who don't have any rental property or running a business, I would think that driving cars are the biggest source of liability.

[EarlyRetiree1978]

Homes are a liability also. A property in the neighborhood I use to live in never shoveled there snow (they lived a couple homes down). They also had a walkway that was uneven. A women fell in the winter time walking up to there front door and broke her hip. The home owners had to pay for that ladies lost wages, and medical expenses (operation, physical therapy, etc).

[Peaceful_Warrior]

Originally Posted by d

no matter the amount you might be sued for, your umbrella policy will have to foot the bill up to the stated amount ... the greater that amount, the more
"enthusiastic" will be the defense they mount on your behalf.

I was going to point this out as well. Even at $1MM, the insurance company has a LOT invested in protecting you and/or settling for the lowest possible price. Even if you have $2MM in assets, they'll do their damned best to win and/or keep the total liabilities below $1MM so they can pay as little as possible.

I have a single rental property right now and am quite comfortable with a $1MM umbrella policy.

[emilylynn]

Insurance companies are perplexing in terms of how they handle claims. It used to be that they would spare no expense in mounting a defense, but over the last decade that has changed dramatically. Often the law firms hired by insurance companies to represent insureds are "bargain basement" firms that stick their associates in cubicles and churn them in and out so fast that nobody even bothers giving them nameplates. The last few attorney fee statements I've seen coming from these firms have been ridiculously low in terms of both the hourly rates charged and the amount of time billed. This would suggest that there are enormous pressures on these firms to do the absolute minimum on cases so as to keep the cost to the insurance company down. I would also note that although the attorney hired by the insurance company is supposed to represent the insured's interests, there is--at least in my experience--little doubt about who the company is aiming to please. I wish I had happier news for the insureds out there who need (and are deserving of) a top-quality defense. I'd be curious about Martha's experience in this regard.

[samclem]

Originally Posted by emilylynn

The last few attorney fee statements I've seen coming from these firms have been ridiculously low in terms of both the hourly rates charged and the amount of time billed. This would suggest that there are enormous pressures on these firms to do the absolute minimum on cases so as to keep the cost to the insurance company down.

That sure seems like false economy on the part of the insurance company--save a nickel on lawyers and spend a dollar on the award/settlement. I guess they've figured it all out and it makes sense to them (or else they haven't done the cost/benefit analysis, which is improbable).

[cute fuzzy bunny]

Next they'll be outsourcing the settlement lawyers out to India.

I had $1M for years. Most suits in my area were averaging under $800k. I upped it to $2M because it was only an extra ~$100 per year.

I figure its a good idea to protect yourself from predatory people and small mistakes. If I do something that a judge feels is worth more than $2M, then I did something tremendously stupid and oughta pay for it.

[Martha]

Originally Posted by emilylynn

Insurance companies are perplexing in terms of how they handle claims. It used to be that they would spare no expense in mounting a defense, but over the last decade that has changed dramatically. Often the law firms hired by insurance companies to represent insureds are "bargain basement" firms that stick their associates in cubicles and churn them in and out so fast that nobody even bothers giving them nameplates. The last few attorney fee statements I've seen coming from these firms have been ridiculously low in terms of both the hourly rates charged and the amount of time billed. This would suggest that there are enormous pressures on these firms to do the absolute minimum on cases so as to keep the cost to the insurance company down. I would also note that although the attorney hired by the insurance company is supposed to represent the insured's interests, there is--at least in my experience--little doubt about who the company is aiming to please. I wish I had happier news for the insureds out there who need (and are deserving of) a top-quality defense. I'd be curious about Martha's experience in this regard.

Absolutely agree.

Insurance defense work is not very desirable work.

In my former firm, our large business clients often would have us look over the shoulder of the insurance defense firms who were defending PI claims brought against our clients.

[ziggy29]

Originally Posted by samclem

That sure seems like false economy on the part of the insurance company--save a nickel on lawyers and spend a dollar on the award/settlement. I guess they've figured it all out and it makes sense to them (or else they haven't done the cost/benefit analysis, which is improbable).

The problem seems to be that an insurance company may look at a particular case and, even if they think they would prevail in court, it may cost $20,000 to defend a $15,000 lawsuit. It's cheaper to settle out of court and pay out the $15K (or close to it) than go to trial, even if you prevailed in court.

The problem is that the more this happens, the more it "pays" to file weak lawsuits against insurance companies and the more human nature would tell us that more "junk" lawsuits would be filed.

Therein lies the rub -- if an insurance company is being sued because of something I allegedly did, I don't appreciate them "settling" out of court and paying off when I don't think I did anything to cause liability. It's almost like a tacit admission by the insurance company that "I did it." I know it's not that legally but it feels that way. It's like they wouldn't be defending me -- but simply agreeing on my guilt and paying off.

[haha]

Originally Posted by ziggy29

It's like they wouldn't be defending me -- but simply agreeing on my guilt and paying off.

Well, it isn't about guilt. Come to think of it, although in criminal court it is called guilt, it really isn't about guilt or innocence there either.

Ha

[chinaco]

Originally Posted by ziggy29

Therein lies the rub -- if an insurance company is being sued because of something I allegedly did, I don't appreciate them "settling" out of court and paying off when I don't think I did anything to cause liability. It's almost like a tacit admission by the insurance company that "I did it." I know it's not that legally but it feels that way. It's like they wouldn't be defending me -- but simply agreeing on my guilt and paying off.

I follow your logic... but in the end... it is about money.

Those cases are about money... compensation for a loss and possibly punitive damages for carelessness or negligence...

I think most Umbrella policies state that the insurer has the right to handle it however they choose (settle it or fight it). I suspect that they would settle the case if the value is small.

[cute fuzzy bunny]

I suppose in that scenario, if someone really wanted the "right" decision, they could waive the insurance payout pursue the court case on their own dime. The insurer did what they were supposed to do: financially insulate the policyholder from unexpected frivolous lawsuits. Its not an insulation from lack of justice.

I get the sentiment though. When my old megacorp had a legal issue they'd form a small committee with the folks directly involved, someone from the legal department and a randomly selected neutral management rep. I got tagged as the latter a handful of times. In most of the cases it was some contractor or supplier who got fired but pulled some scam by getting a lawyer and demanding some middling amount of money from 20-100k. Most of the time we ended up just paying the amount to make them go away since a full court brouhaha would cost about the same and we'd get bad press out of it.

I hated that. But I got it.

[FinanceGeek]

I have always figured that the low cost of umbrella insurance is a strong indicator that few successful claims are made against these policies. For example, try comparing the cost of a $1m umbrella policy against a $1m life insurance policy sometime...

If its so cheap to go from $1m to $2m to even $5m, then obviously the insurance company isn't really thinking its likely they will pay out anywhere near this much very often.

The implication I take away from it is that if the insurance company isn't going to lose even $1m, what is the chance of me losing anything above & beyond that policy's limit.

Miniscule.

[audreyh1]

Good point.

Audrey

[cute fuzzy bunny]

Yahbut...the thing to consider is...the weight of the loss vs the cost, no matter how small the likelihood. If its $200 a year to avoid getting royally screwed out of everything you've earned...good price to pay for the protection.

Plenty of folks around here pay very close attention to minor details around where to take benefits or pensions or SS to catch a 3-5% edge on the odds, with the likely cost being in the tens of thousands of dollars...

I consider it a small price to pay for the odds of being the guy who was changing the radio station just at the moment that a minivan full of 6 year old paraplegic nun lawyers pulled out in front of me.

[TexasGal]

Originally Posted by WanderALot

Before I signed up for my $1M umbrella policy, I had to increase my liability limits on my auto policy to $500k. Now, my understanding of the policy limits are that if I were to get in a car accident that had damages, the first $500k would be covered by my car insurance policy and my next $1M is covered by my umbrella? If this is the case, isn't my effective liability coverage $1.5M, provided of course that the damages are caused while I was driving.

Hmmm . . . my insurance provider (Traveler's) told me that my $500K auto liability basically served as the umbrella deductible and that the umbrella policy of $1M will cover another $500K for a total liability coverage of $1M.

I have $300K on home and they explained that the umbrella would pay the other $700K on the $1M umbrella policy.

Does this sound totally wrong?! Maybe I misunderstood or Traveler's is screwing me.

[Martha]

Originally Posted by TexasGal

Hmmm . . . my insurance provider (Traveler's) told me that my $500K auto liability basically served as the umbrella deductible and that the umbrella policy of $1M will cover another $500K for a total liability coverage of $1M.

I have $300K on home and they explained that the umbrella would pay the other $700K on the $1M umbrella policy.

Does this sound totally wrong?! Maybe I misunderstood or Traveler's is screwing me.

I looked at this after you posted, and it appears that you could be right. Your umbrella policy may look at the underlying insurance as the "deductible" on the umbrella. So, check your umbrella.