Yet another Umbrella Policy Topic

[Martha]

Well, be sure to double check the policy. My understanding is that my policy is different. I am going to read the policy to be sure.

[haha]

Originally Posted by Martha

I looked at this after you posted, and it appears that you are right. Many if not most policies look at the underlying insurance as the "deductible" on the umbrella. So, check your umbrella.

This makes it that much better to go up for some of that cheap coverage above the first million.

Ha

[WanderALot]

Originally Posted by Martha

Well, be sure to double check the policy. My understanding is that my policy is different. I am going to read the policy to be sure.

I called up my agent again just to be sure and it looks like the umbrella limit is in addition to my homeowner's/auto policy. I'll also be reading my policy when I get home just to be sure.

There is another interesting quirk I found out about. My auto/home is structured as such:

Liability for Home: 500k
Liability for Auto: 250k/500k (single/max per incident)

With my $1M Umbrella, a single-individual lawsuit in my house would be covered up till $1.5M limit, but a single-individual lawsuit caused by my car would only be covered up till $1.25M. A multiple individual lawsuit would be covered for 1.5M for both. I guess this is pretty obvious, but I just didn't realize it.

[free4now]

In the case of umbrella insurance, the chances of it saving me from financial ruin are so incredibly small that it's not worth bothering with. There are so many things that can lead to financial ruin but which are unaffected by umbrella insurance: medical expenses denied by insurance, war, terrorism, "acts of god", government seizure, bad investment decisions in senility, embezzlement, bad marriage, bad divorce, the list goes on. When you see the risks that umbrella insurance protects against in this context, it seems kind of silly to sink money into protecting against such a small slice of the risk pie.

Many people here seem to agree with Bernstein that anything over about 80% survivability isn't worthwhile, meaning they agree that there's somewhere in the neighborhood of a 20% chance that they could be ruined by something besides SWR. Spending $200 on Umbrella insurance may protect you from ruin in say 0.00001% (my made up figure) of cases, but if there's still a ~20% chance you'll be ruined anyway what's the point? Trying to throw $200 at every 0.00001% chance would quickly bankrupt you unless you are ultrarich, not to mention that it would tire you out securing and maintaining all those policies. The only reason people do it with umbrella insurance is because, well, it's there. There are no policies available for most of the actual risks.

My take is that the benefit of umbrella insurance is more psychological than practical... it makes people feel like they are making a dent in the ~20% of possible ruin scenarios. But in reality if you take a look at an umbrella insurance policy it doesn't even cover most actual instances of personal liability.

[cute fuzzy bunny]

I think the difference is that with the <100% survival rates, you can cut spending, change asset allocations or alter your lifestyle to accommodate a problem like a depression, severe recession or heavy inflation.

I dont think you have as much flexibility with an 800k judgment against you because you ran into the orphanage minivan after spilling hot coffee in your lap.

While its unusual to find oneself in the position of the target of such a suit, a $200 payment to assure yourself relatively immune to it seems to me to be a bargain.

Would you pay $5,000 a year to make an 80% portfolio 100% survivable?

Wow, thats cheap!

Odds of your house burning down are pretty low as well. And thats gotta be a $700-1000 a year savings to drop that coverage...and a total loss to the property would probably amount to less than a lawsuit would cost.