Calculating Umbrella Insurance Needs

[MBAustin]

Saw this today in Kiplinger magazine:

How Much Umbrella Insurance Do You Need?

I didn't realize that in many states IRAs are protected from lawsuits (at least partially) so you don't need to account for that in your umbrella protection. Handy calculator also included but the link isn't too obvious in the article so here it is directly: Umbrella Calculator

 

[RunningBum]

All the calculator does is take your total net worth, and subtracts your home equity, retirement plan, and underlying liability coverage, to come up with a number.

The problem with that is, a lawsuit judgement may have nothing to do with your net worth.

 

[Spock]

odd the calculator doesn't include any of the factors mentioned in the article... miles driven, elderly driver, living in a condo, etc.

 

[COcheesehead]

I am in the process of switching insurance companies. I asked them to quote my umbrella policy at $X. The underwriter at the new company kicked back my application and asked were I got my number from. My choices were 1) a financial advisor or 2) is it my net worth?

 

[pb4uski]

^^^^ Did he give you any guidance as to how to determine $X? or what the insurer would expect?

 

[COcheesehead]

^^^^ Did he give you any guidance as to how to determine $X? or what the insurer would expect?

I said net worth. They are issuing the policy so I guess that is acceptable.

 

[Midpack]

The problem with that is, a lawsuit judgement may have nothing to do with your net worth.

Thats what I was thinking. So our umbrella policy is a $ amount that should cover what’s in the realm of likely worst case - I know that’s subject to debate. If I run into a billionaire, I’m screwed...

 

[USGrant1962]

Thats what I was thinking. So our umbrella policy is a $ amount that should cover what’s in the realm of likely worst case - I know that’s subject to debate. If I run into a billionaire, I’m screwed...

Nah, just demand a jury trial...

 

[COcheesehead]

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.

 

[Dtail]

On a related note to the decision for coverage, it has been mentioned in other articles/communications that I have read that the firm representing you wants you to have some skin in the game.
That "skin" is typically represented as a minimum of 2mm.

Edit - okay I see @Cocheesehead stated it effectively in a cross post.

 

[COcheesehead]

On a related note to the decision for coverage, it has been mentioned in other articles/communications that I have read that the firm representing you wants you to have some skin in the game.
That "skin" is typically represented as a minimum of 2mm.

Edit - okay I see @Cocheesehead stated it effectively in a cross post.

Great minds think alike.

 

[Spock]

... If I run into a billionaire, I’m screwed...

I was thinking a convention/tour bus full of Drs heading for the golf course.

 

[ncbill]

For those in the USA, exposure depends a lot on your state laws.

Here for example if the plaintiff is even 1% at fault they can't collect any monetary damages.

Tax-deferred accounts of any amount are immune from claims by private creditors.

Nor can private creditors garnish wages, except for federally-guaranteed student loans.

BUT, I still think you should have at least $2 million in umbrella in order to provide compensation to an injured party where you (or a family member) caused their injury.

E.g., one of my close friends had their car borrowed by a relative, who proceeded to cripple a young mother in a traffic accident that was clearly the relative's fault.

An umbrella policy would have provided at least some recompense for her permanent injuries.

 

[ShokWaveRider]

I do double my unprotected assets. So $4m in our case.

 

[Sunset]

I do double my unprotected assets. So $4m in our case.

And I sue for $6 million.

 

[Sunset]

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.

+1
It makes sure they show up and fight for you (really them first).

 

[Cobra9777]

A couple years ago I had a discussion with our insurance agent about how much umbrella coverage to carry. He advised to carry total liability (underlying policy plus umbrella) that was slightly greater than exposed assets. He explained that it is extremely rare for settlements to exceed policy liability coverage in such cases because the personal injury attorney would much rather settle quickly for the amount of insurance coverage than risk a prolonged jury trial over personal assets. Personal assets come into play much more frequently when someone is obviously underinsured relative to assets. Or in catastrophic injury cases regardless of coverage.

 

[street]

I reviewed my insurance policies (made changes) last summer and incorporated an umbrella policy. They advised me to have a 1M$ umbrella over what I had with auto, home and ranch. The ranch and home both have a 1M$ policy to start with. So that is what I got was 1M policy to kick in if needed. We never discussed IRA, 401K and money portfolio values and not sure I would of been comfortable doing that with them. I got four estimates and stayed with the same company I was with.

 

[pb4uski]

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.

 

[MarieIG]

Thats what I was thinking. So our umbrella policy is a $ amount that should cover what’s in the realm of likely worst case - I know that’s subject to debate. If I run into a billionaire, I’m screwed...

Probably not. Most of them are not looking to make bank from an auto accident.

 

[pb4uski]

Unless you ran into a petty, vengeful billionaire.

 

[MarieIG]

 

[donheff]

I'm in the COCheesehead school. Big enough that the insurer has enough skin in the game to defend me. I never could understand why people thing insuring their net worth makes sense. If the award is larger down you go.

As an aside, I just learned the hard way that many umbrella policies have stricter underwriting policies that auto policies. Be careful lending your car to people. A couple of fender benders with uncovered drivers and you can lose the policy.

 

[COcheesehead]

My insurance agent, of all people, bumped a pedestrian in a crosswalk with her car. The “victim” went after her umbrella policy and the company awarded the person a low 6 figure settlement. She cannot get another umbrella now because of the claim.

 

[Midpack]

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