Do you carry Excess Liability Coverage

[Mo Money]

"So what happens if you have a net worth of 1 million dollars and have a 1 million dollar umbrella policy but have a 2 million judgement against you? Are you then broke? (or worse)" -- Car Guy

Back in the day, I was a civil trial lawyer. Some things to note: First, many or most cases settle before a judgment is ever reached. This means that if the injury is worth, say, $2MM, then the plaintiff (and his lawyer) are likely to take less to eliminate the high cost of trial, and the real risk of losing, or getting less from the jury than plaintiff hoped to get.

Second, the insurance company will often want to settle to keep legal costs under control, particularly if the amount sought in settlement is less than the policy limits.

Third, the courts (the judge) will often be pushing -- hard -- for settlement. Court dockets are usually overcrowded, and judges want cases to settle to clear the backlog.

Fourth, even if there's ultimately a judgment against you (assuming settlement negotiations fail AND you lose at trial), then you can still negotiate a settlement even with a judgment. When those negotiations occur, quite often the plantiff's lawyer and his client will take less than the full judgment amount to avoid chasing assets that are time-consuming and expensive to reach (e.g., jointly held assets like a house, a retirement plan protected by ERISA or state law, etc.).

So, even in the worst case scenario, the amount of net worth is seldom fully exposed, and the plaintiff and his lawyer are likely to aim for, or ultimately get, less.

So with $1MM in net worth and $1MM in coverage, all hope is not lost.

Personally, I have $2MM in coverage, and my net worth is higher than the $2MM.

YMMV, I am not your lawyer, disclaimer, disclaimer, yadda yadda.

 

[travelover]

Insurance companies are pretty good at estimating risk. Comparing the yearly rate to the potential payout gives one some idea of how likely one is to use the insurance.

 

[jim584672]

Don't forget many assets are exempt from judgements.

Exempt assets include:
Homestead exemption for Real Estate (150k per person in my state)
401k
IRAs (check your state law)
Defined Benefit Pensions
Social Security, SSDI

 

[jabbahop]

ours is more expensive since we cover multiple teen (male) drivers and have a boat. I do like the peace of mind and it is worth the cost to us.


Sent from my iPad using Tapatalk

 

[Car-Guy]

"So what happens if you have a net worth of 1 million dollars and have a 1 million dollar umbrella policy but have a 2 million judgement against you? Are you then broke? (or worse)" -- Car Guy

Back in the day, I was a civil trial lawyer. Some things to note: First, many or most cases settle before a judgment is ever reached. This means that if the injury is worth, say, $2MM, then the plaintiff (and his lawyer) are likely to take less to eliminate the high cost of trial, and the real risk of losing, or getting less from the jury than plaintiff hoped to get.

Second, the insurance company will often want to settle to keep legal costs under control, particularly if the amount sought in settlement is less than the policy limits.

Third, the courts (the judge) will often be pushing -- hard -- for settlement. Court dockets are usually overcrowded, and judges want cases to settle to clear the backlog.

Fourth, even if there's ultimately a judgment against you (assuming settlement negotiations fail AND you lose at trial), then you can still negotiate a settlement even with a judgment. When those negotiations occur, quite often the plantiff's lawyer and his client will take less than the full judgment amount to avoid chasing assets that are time-consuming and expensive to reach (e.g., jointly held assets like a house, a retirement plan protected by ERISA or state law, etc.).

So, even in the worst case scenario, the amount of net worth is seldom fully exposed, and the plaintiff and his lawyer are likely to aim for, or ultimately get, less.

So with $1MM in net worth and $1MM in coverage, all hope is not lost.

Personally, I have $2MM in coverage, and my net worth is higher than the $2MM.

YMMV, I am not your lawyer, disclaimer, disclaimer, yadda yadda.

Thanks for your response but my post was really intended to be a rhetorical question. As many have already commented, I think a million dollar or more umbrella policy would help to encourage the insurance company to fight for you. (That is really why I have one too) However I did learn something. I didn't not know that 401k's and IRA's had some protection. But even with that, I'll still keep my policy.

 

[Golden sunsets]

how is your house protected by a revocable trust. From a quick web search it appears a irrevocable trust can provide protection as the property is out the person's name, but a revocable trust can be quickly undone.... so the person can undo thisl from Two Types of Trusts: Which Protect Against Creditors? - EstatePlanning.com

Bingy Bear; you may be right but after reading Athena's situation it occurred to me that the policies should be in the name that is on the deed and or list the trust as an additional insured. My insurance agent agreed that it was a good threshold question to pursue withe the underwriter and also thought that the umbrella liability policy should carry the same endorsement in the event that a claim was based on the home policy.

 

[Golden sunsets]

"So what happens if you have a net worth of 1 million dollars and have a 1 million dollar umbrella policy but have a 2 million judgement against you? Are you then broke? (or worse)" -- Car Guy Back in the day, I was a civil trial lawyer. Some things to note: First, many or most cases settle before a judgment is ever reached. This means that if the injury is worth, say, $2MM, then the plaintiff (and his lawyer) are likely to take less to eliminate the high cost of trial, and the real risk of losing, or getting less from the jury than plaintiff hoped to get. Second, the insurance company will often want to settle to keep legal costs under control, particularly if the amount sought in settlement is less than the policy limits. Third, the courts (the judge) will often be pushing -- hard -- for settlement. Court dockets are usually overcrowded, and judges want cases to settle to clear the backlog. Fourth, even if there's ultimately a judgment against you (assuming settlement negotiations fail AND you lose at trial), then you can still negotiate a settlement even with a judgment. When those negotiations occur, quite often the plantiff's lawyer and his client will take less than the full judgment amount to avoid chasing assets that are time-consuming and expensive to reach (e.g., jointly held assets like a house, a retirement plan protected by ERISA or state law, etc.). So, even in the worst case scenario, the amount of net worth is seldom fully exposed, and the plaintiff and his lawyer are likely to aim for, or ultimately get, less. So with $1MM in net worth and $1MM in coverage, all hope is not lost. Personally, I have $2MM in coverage, and my net worth is higher than the $2MM. YMMV, I am not your lawyer, disclaimer, disclaimer, yadda yadda.

Thank you Mo Money for your insight. I think it will come down to what the incremental cost will be for the third or fourth million of coverage. Oddly we are less likely at this point in our lives to be sued with no youthful drivers, quiet lifestyle, retirement status, however as our NW has grown we have become increasingly cautious and prone to take whatever steps we can to protect our assets. The aging process no doubt.

 

[sheehs1]

I do not have an umbrella policy but after several threads on this topic (and a couple of recent auto accidents in our area), I called my insurance company today to get quotes. My homeowners currently carries a half million on both vehicle and house (in case someone falls. While I do not typically like insurance, in todays society I don't think that is enough and it's no where near my net worth. It does seem to be about (1) getting a little leverage so your insurance company is more on the hook and will held defend (2) a bit more peace of mind at a relatively cheap cost.

Until now, anyone working in my yard or on my house that was not insured had to sign a piece of paper stating "they would not sue me and take full responsibility for choosing to do the work", disclosure regarding knowledge that I had a dog, etc. My sister had a friend that visited her home, fell and sued her. It wasn't much but still it is the point of the matter.

Hopefully putting something in place will greatly reduce the risk of someone taking all of my available assets. Thanks to the poster for restarting this topic.

 

[Dog]

"My sister had a friend that visited her home, fell and sued her. It wasn't much but still it is the point of the matter. "

Really....I'm not sure I would call this person a "friend"!


We've had a $1M umbrella policy for the past 10 years. May consider upping to $2M next time we renew.

 

[robertf57]

I am trying to understand putting a personal residence into living trusts. This doesn't protect the asset at all and I suspect it may lead to issues with homestead exemption. The only think I can think of is probate issues; but, we have beneficiary deeds in many/most states that automatically convey the property.

For those of you who have their home in a living trust, can you explain why?

 

[sheehs1]

"My sister had a friend that visited her home, fell and sued her. It wasn't much but still it is the point of the matter. "

Really....I'm not sure I would call this person a "friend"!


We've had a $1M umbrella policy for the past 10 years. May consider upping to $2M next time we renew.

Agreed.

Quotes I received today. 1 million = $115, 2 million = $202 and 3 million = $276. Same company as my homeowners and auto so there were some nominal credits. For now, am going with the 2 million since it is in addition to the other half million under homeowners. Still doesn't cover all of net worth and future income but it's a start. More than I had that is for sure.

 

[Corporateburnout]

Agreed.

Quotes I received today. 1 million = $115, 2 million = $202 and 3 million = $276. Same company as my homeowners and auto so there were some nominal credits. For now, am going with the 2 million since it is in addition to the other half million under homeowners. Still doesn't cover all of net worth and future income but it's a start. More than I had that is for sure.

What state are you in? I pay $368 for 1 million with the same company as my homeowners and autos.

 

[sheehs1]

What state are you in? I pay $368 for 1 million with the same company as my homeowners and autos.

Virginia and an hour inland from the coast. What state are you in?

 

[Corporateburnout]

Virginia and an hour inland from the coast. What state are you in?

MA 25 minutes outside Boston.

 

[Golden sunsets]

We've got a $2 million Umbrella. It doesn't cover our total net worth but I'm hoping it's enough to cover most of the worst cases. Anything that's not in IRAs is in a Revocable Trust so I'm not sure they can attach our other assets. The house is titled in the trust and the trust is an additional insured on our Homeowners policy. Just realized it ought to be on our Umbrella as well!

Athena; Our home is in a Revocable Trust as well. I contacted our insurance agent yesterday regarding naming the trust as additional insured on the home and was told today that we would have to rewrite our homeowners policy in the name of the Trust and it would have to be insured as a "Rental". We would then have to have a Renter's Policy to cover our personal property. I am waiting for the quotes, but I'm anticipating higher overall premiums. Does any of this ring a bell with you?

 

[pb4uski]

I do not have an umbrella policy but after several threads on this topic (and a couple of recent auto accidents in our area), I called my insurance company today to get quotes. My homeowners currently carries a half million on both vehicle and house (in case someone falls. While I do not typically like insurance, in todays society I don't think that is enough and it's no where near my net worth. It does seem to be about (1) getting a little leverage so your insurance company is more on the hook and will held defend (2) a bit more peace of mind at a relatively cheap cost.

Until now, anyone working in my yard or on my house that was not insured had to sign a piece of paper stating "they would not sue me and take full responsibility for choosing to do the work", disclosure regarding knowledge that I had a dog, etc. My sister had a friend that visited her home, fell and sued her. It wasn't much but still it is the point of the matter.

Hopefully putting something in place will greatly reduce the risk of someone taking all of my available assets. Thanks to the poster for restarting this topic.

When I put my umbrella in place, I found it was cheaper to increase the base policies to their max and then add a smaller umbrella than to leave the base policies where they were and add on a larger umbrella. YMMV.

 

[eta2020]

I have umbrella policy. It is useful but if the award is 10 million and you have umbrella for 3 million plus 3 Million net worth they will collect insurance and your money....

Now 401ks, IRAs, Homestead and kids Trust fund they will not collect. I keep this in my mind when making investment decisions.

In Florida also annuities and house of ANY value is protected from creditors.... So you can pretty much park all your money there and don't need Umbrella. I guess that is why OJ selected that as his state of residence after infamous trial

 

[Running_Man]

The reality is that any low-life who can find a low-life lawyer to take their case can sue anyone for as much as they want so of course it is possible that I could get sued for more. But since my my insurer is one the hook for the first $2.5 million or so between base policy coverage and the umbrella they have a high incentive to provide a vigorous defense.

I don't know anyone who has an umbrella for more than their net worth as you seem to be suggesting. Are you an insurance agent?

No, my point is that net worth has no place in determining the amount of insurance one would need. Most of the net worth would not be even at risk, assuming a goodly portion of assets are in protected status.

If one only has a 1 million of assets that could be at risk in a lawsuit does that then mean that only 1 million of insurance is needed? Or if total assets are 2 million would 2 million be needed? The portfolio is not being insured your actions are being insured. I realize that insurance companies look to see what your total assets are to be sure you have an insurable risk, but lawyers suing you look at total amount available to sue and the insurance company is protecting your actions, your assets are just by themselves. The one advantage I know of is if an insurance company has the opportunity to settle a claim for an amount within the policy limits and they do not do so, then the insurance company may be held liable for the full amount of damages that result from a jury verdict.


The question I feel needs to be answered is how likely is an action going to occur that would exceed the value of your base insurance but use only a portion of your umbrella? This would be lawsuits that results in a final claim of between 500K and 1.5K with a one million dollar umbrella policy and some normal insurance. As the rates show the risk is practically nil, so most likely if you have to use the umbrella policy there is a very high percentage chance if you reach that point, that your assets will be at risk in any case. If you are judged to have committed a crime (such as driving under the influence) and are forced to pay restitution, an umbrella policy won't cover it. Likewise, intentional acts, intentional bodily injury, intentional property injury and other willful and malicious acts by the insured are not covered. Yet these are the cases when a large payment is most likely to be initiated.

I suppose the more assets one has the more insurance one would need to try and get negotiated insurance settlements within the umbrella policy. Overall 150-200 per year is not a significant expense so probably is worth getting but it seems to me the larger the value of the assets you have at risk, the less insurance you actually have hopefully none here would ever need to be able to comment on that.

 

[wanaberetiree]

interesting ... thx
"the trust is an additional insured on our Homeowners policy" what does that mean?

 

[pb4uski]

I guess you are entitled to your opinion, but you have failed to really explain what amount you think someone should carry.

....I realize that insurance companies look to see what your total assets are to be sure you have an insurable risk....

I've never been asked by an insurer about total assets and have never heard of anyone that has. If you don't believe me then do a poll.

Seems to me you are doing a lot of pontificating.

And you have totally ignored the other reason I provided (twice) that the insurer has millions of reasons to provide a vigorous defense given their potential outlay.

 

[sheehs1]

And you have totally ignored the other reason I provided (twice) that the insurer has millions of reasons to provide a vigorous defense given their potential outlay.

That is the primary reason I went ahead with signing the quote for 2m today on top of my base homeowners and car insurances.

Another reason (for me) was the point made in this thread that often the lawyers will settle "out of court" for amounts that are more easily attainable than going to the expense of court, more lawyers and fighting for personal assets.

Both made a lot of logical sense (to me). Plus it is cheap.

What are the risks or the likelihood RunningMan? I think the better question is "what do you risk by not having some level of it?

 

[ETFs_Rule]

Ric Edelman was talking about excess liability insurance recently. He highly recommends it if you have money to sue for because it's SO CHEAP. Protect your nest egg!

 

[athena53]

Athena; Our home is in a Revocable Trust as well. I contacted our insurance agent yesterday regarding naming the trust as additional insured on the home and was told today that we would have to rewrite our homeowners policy in the name of the Trust and it would have to be insured as a "Rental". We would then have to have a Renter's Policy to cover our personal property. I am waiting for the quotes, but I'm anticipating higher overall premiums. Does any of this ring a bell with you?

That's not the response we got at all. They just added the Trust as a Named Insured to our regular Homeowners policy. That might be because it's called the Athena53 Trust and I'm the sole Trustee. We have all our policies with Travelers.

 

[eta2020]

Ric Edelman was talking about excess liability insurance recently. He highly recommends it if you have money to sue for because it's SO CHEAP. Protect your nest egg!

But it does not protect it. What it does is cover first X Million of liability. If you owe more than X Million it comes out of your pocket.

It is not like if you have net worth of 4 Million buy 4 Million liability insurance and you all safe

 

[Running_Man]

I guess you are entitled to your opinion, but you have failed to really explain what amount you think someone should carry.



I've never been asked by an insurer about total assets and have never heard of anyone that has. If you don't believe me then do a poll.

Seems to me you are doing a lot of pontificating.

And you have totally ignored the other reason I provided (twice) that the insurer has millions of reasons to provide a vigorous defense given their potential outlay.

Sorry if my posts are annoying you, it was not my intention and this will not happen again. In my corporate job part of my duties for many years was being responsible for overseeing insurance policies and my experience is that insurance companies are very happy to take umbrella premiums but work very hard at looking for exclusions when a claim occurs, occurring in much the manner as this claim against State Farm:
http://mdcourts.gov/opinions/coa/2013/48a12.pdf
So to me it requires a level of understanding what you are actually insuring because I do believe the insurance company is worrying about their pocketbook not yours, and their best defense is to look for an exclusions of coverage in the policy unfortunately and not in joining with me in defense of my actions and awards against me. However this insurance is very cheap, my bias is from my former interactions with insurance companies on a corporate level and there are many examples where it has been beneficial and definitely not at all needing this level of analysis. I personally do not carry umbrella insurance.