Calculating Umbrella Insurance Needs

[lakerunner]

I just went though this: My teenage son was driving my car one night when another kid ran a red light and my son hit him. My son was uninjured, but the other driver had about $200,000 in medical bills. This went to court, I have a $4mm umbrella, so I was not worried. But out of 12 jurors, no one could figure out that my son's testimony that he had a green light, or the friend of the other driver who admitted he also ran the red light was "evidence". We lost for $400,000. Fortunately, insurance covered it all. So I carry a good size policy. Law suits in the US are out of control.

 

[street]

WRT the $2M umbrella threshold, my provider will lock in up to $2M over the phone. They offer umbrella insurance up to $10M, but underwriters get involved on any policy greater than $2M. I renew insurance in Jan, so current rates FWIW:
$1M - $167/yr
$2M - $276/yr
$3M - $401/yr

Midpack >>> "underwriters get involved on any policy greater than $2M"
. Is this your insurance company's policy or is it underwriters only get involved over 2M with every insurance company?

 

[Midpack]

Midpack >>> "underwriters get involved on any policy greater than $2M"
. Is this your insurance company's policy or is it underwriters only get involved over 2M with every insurance company?

I only got quotes from my insurance provider. I don’t know, others here may?

 

[Stormy Kromer]

Here is another angle to look at this.


An older gentleman explained to me why he carried a $2M umbrella policy when he had a net worth well under $1M. He said that he did it out of concern for his passengers. If he was responsible for an accident and his 4 grandchildren were in the car with him he wanted to be sure he had adequate limits to protect them.

 

[street]

Thanks Midpack.

 

[Nick12]

Unless you ran into a petty, vengeful billionaire.

There is quite a number of them in FL. There was a bumper sticker a long time ago that said "Hit me, I need the money". The scammers know how to stage a vehicle accident and the ambulance chaser lawyers not far behind.

 

[GNXGuy]

With those quotes, apparently you don't have any drivers under 25 nor own any rental properties.

WRT the $2M umbrella threshold, my provider will lock in up to $2M over the phone. They offer umbrella insurance up to $10M, but underwriters get involved on any policy greater than $2M. I renew insurance in Jan, so current rates FWIW:
$1M - $167/yr
$2M - $276/yr
$3M - $401/yr

 

[Chuckanut]

And I sue for $6 million.

I guess the statistic we need is how many lawsuits involving ordinary people without deep personal pockets end up with an award much greater than the person's insured amount. My guess is it's a very small percentage, under 10%. And I do mean 'guess'.

 

[ncbill]

Here is another angle to look at this.

An older gentleman explained to me why he carried a $2M umbrella policy when he had a net worth well under $1M. He said that he did it out of concern for his passengers. If he was responsible for an accident and his 4 grandchildren were in the car with him he wanted to be sure he had adequate limits to protect them.

That probably works for grandkids, but be aware most umbrella policies have a "own household" exclusion, so a spouse/kids would not be covered if the other spouse while driving caused their injures.

They would be covered under combined uninsured/underinsured coverage...one lawyer I read advised cranking that coverage up to $1 million because of the above exclusion.

 

[ncbill]

I guess the statistic we need is how many lawsuits involving ordinary people without deep personal pockets end up with an award much greater than the person's insured amount. My guess is it's a very small percentage, under 10%. And I do mean 'guess'.

This gets discussed all the time over on bogleheads.

You don't see 7 figure judgments against an individual defendant...unless they're DUI.

So don't drink (or drug) & drive.

 

[flintnational]

Has anyone been able to locate the actual historical loss numbers for umbrella risks? In the c*rporate world, when purchasing liability coverage, we had access to loss data showing large liability losses over multi-year periods. Accordingly, we could purchase x$ worth of liability insurance and feel confident it would cover 70% of historical settlements/judgements. IOW, it would help to know that a $1M umbrella limit would cover 80% of historical umbrella losses and a $5M limit would cover 97%.

 

[Cobra9777]

The best advice I ever saw regarding the value of an umbrella policy is that you want to make it high enough that your insurance provider cares enough about their potential loss that they send a bunch of good lawyers to defend you.

That's the way I like to frame it. My umbrella carrier has 2 million reasons to provide me with a vigorous defense.

I agree with this thinking. Just curious why $2M? That number seems to pop up a lot in this context. I have $1M umbrella plus $0.5M on the auto policy. That's 1.5 million reasons to mobilize the "A team" on my behalf. My gut says that's plenty. But I have no experience in these matters. And hope to keep it that way.

Has anyone been able to locate the actual historical loss numbers for umbrella risks? In the c*rporate world, when purchasing liability coverage, we had access to loss data showing large liability losses over multi-year periods. Accordingly, we could purchase x$ worth of liability insurance and feel confident it would cover 70% of historical settlements/judgements. IOW, it would help to know that a $1M umbrella limit would cover 80% of historical umbrella losses and a $5M limit would cover 97%.

+1 Would love to see those numbers.

 

[Sunset]

I agree with this thinking. Just curious why $2M? That number seems to pop up a lot in this context. I have $1M umbrella plus $0.5M on the auto policy. That's 1.5 million reasons to mobilize the "A team" on my behalf. My gut says that's plenty. But I have no experience in these matters. And hope to keep it that way.
......

Because $1M doesn't buy as much health care/doctoring/nursing as it used to 10 years ago.

And the cost deferential between 1M and 2M is so small, can you imagine realizing one day, that the $23 saved each year for the past X years, just got eaten by a 1.1M or higher decision.

 

[USGrant1962]

Because $1M doesn't buy as much health care/doctoring/nursing as it used to 10 years ago.

And the cost deferential between 1M and 2M is so small, can you imagine realizing one day, that the $23 saved each year for the past X years, just got eaten by a 1.1M or higher decision.

This. Plus the prior discussion about $2M being the non-underwritten limit.

 

[Cobra9777]

Because $1M doesn't buy as much health care/doctoring/nursing as it used to 10 years ago.

And the cost deferential between 1M and 2M is so small, can you imagine realizing one day, that the $23 saved each year for the past X years, just got eaten by a 1.1M or higher decision.

Thanks, although my incremental cost for $2M is about $350/yr. I'm covering a rental house, 3 cars, plus the main house is quite large with a pool, pond, and some other risks. If it was $23, obviously that would be a no-brainer.

Also, you mentioned higher medical costs vs 10 years ago, which is certainly a good reason to carry more umbrella, generally. But I guess I was asking more specifically about: What level of liability coverage would ensure I get the "A Team" of lawyers? Let's say it's a huge, possibly quasi-frivolous claim, like $6M, for an auto accident with some injuries. And I have exposed assets of $1M that I need to protect. The insurance company is potentially on the hook for either $1M or $2M, depending on how much umbrella I buy. Obviously $2M exposure is more motivation than $1M. I get that. But isn't $1M, plus another $0.5M of auto liab, also enough motivation to mobilize the "A Team?"

 

[pb4uski]

I agree with this thinking. Just curious why $2M? That number seems to pop up a lot in this context. I have $1M umbrella plus $0.5M on the auto policy. That's 1.5 million reasons to mobilize the "A team" on my behalf. My gut says that's plenty. But I have no experience in these matters. And hope to keep it that way. ...

Good question... $2m is probably more than what I need as I recently realized that I can probably exclude some assets that would be protected.

 

[Hermit]

Thanks, although my incremental cost for $2M is about $350/yr. I'm covering a rental house, 3 cars, plus the main house is quite large with a pool, pond, and some other risks. If it was $23, obviously that would be a no-brainer.

Also, you mentioned higher medical costs vs 10 years ago, which is certainly a good reason to carry more umbrella, generally. But I guess I was asking more specifically about: What level of liability coverage would ensure I get the "A Team" of lawyers? Let's say it's a huge, possibly quasi-frivolous claim, like $6M, for an auto accident with some injuries. And I have exposed assets of $1M that I need to protect. The insurance company is potentially on the hook for either $1M or $2M, depending on how much umbrella I buy. Obviously $2M exposure is more motivation than $1M. I get that. But isn't $1M, plus another $0.5M of auto liab, also enough motivation to mobilize the "A Team?"

I thought the 1 million included underlying home and auto insurance for a total of 1 million.

 

[Cobra9777]

I thought the 1 million included underlying home and auto insurance for a total of 1 million.

No, $1M umbrella is on top of whatever the underlying policy liability limits are.

 

[Sunset]

Good question... $2m is probably more than what I need as I recently realized that I can probably exclude some assets that would be protected.

But your level of assets has nothing to do with how much you will have to pay after losing a lawsuit.
Even if you only had $400,000 of total assets including your house, a $2M policy will offer more protection than a $1M policy.

Maybe a better way to think of it is:

How much do I want the insurance company to pay, before I start paying ?

 

[Sunset]

Thanks, although my incremental cost for $2M is about $350/yr. I'm covering a rental house, 3 cars, plus the main house is quite large with a pool, pond, and some other risks. If it was $23, obviously that would be a no-brainer.

Also, you mentioned higher medical costs vs 10 years ago, which is certainly a good reason to carry more umbrella, generally. But I guess I was asking more specifically about: What level of liability coverage would ensure I get the "A Team" of lawyers? Let's say it's a huge, possibly quasi-frivolous claim, like $6M, for an auto accident with some injuries. And I have exposed assets of $1M that I need to protect. The insurance company is potentially on the hook for either $1M or $2M, depending on how much umbrella I buy. Obviously $2M exposure is more motivation than $1M. I get that. But isn't $1M, plus another $0.5M of auto liab, also enough motivation to mobilize the "A Team?"

If they are not busy covering a case with $3 million liability

 

[googily]

No, $1M umbrella is on top of whatever the underlying policy liability limits are.

Also, my insurance company required that I max out my auto coverage before giving me an umbrella policy. (Mine is $2m, just to add to the thread data points.)

 

[Sunset]

Also, my insurance company required that I max out my auto coverage before giving me an umbrella policy. (Mine is $2m, just to add to the thread data points.)

Your auto insurance must have been low, as my insurance company reduced my auto coverage once they gave me umbrella ins.

 

[imoldernu]

Am in the process of fixing my DUMB. Will come back with details.

 

[youbet]

Maybe a better way to think of it is:

How much do I want the insurance company to pay, before I start paying ?

This.

 

[pb4uski]

But your level of assets has nothing to do with how much you will have to pay after losing a lawsuit.
Even if you only had $400,000 of total assets including your house, a $2M policy will offer more protection than a $1M policy.

Maybe a better way to think of it is:

How much do I want the insurance company to pay, before I start paying ?

While I concede that someone can sue you for whatever they want to, as a practical matter they will look at your income and assets only because you can't draw blood from a stone (or is it turnip).

That said, $2.5 million is obviously better than $1.5 million, but in both cases the insurer has a strong incentive to provide me with a vigorous defense.