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Umbrella Insurance:How much & when to increase?
Old 04-09-2021, 06:30 PM   #1
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Umbrella Insurance:How much & when to increase?

Hello all,

This thread https://www.early-retirement.org/for...ed-108578.html got me thinking about the following questions:

- How much is sufficient? What factors affect the calculation of that number?
- When should I consider increasing the limit?
- What does an 'underwriting process' involve and how hard is it to pass?
- What happens if the current insurance company doesn't let me to increase to $3M or $5M?
- Would getting a 2nd umbrella from a different insurance company help in case of a lawsuit? It would probably be difficult to find such a company if I wanted to keep home and cars with my primary insurance company.

My limited understanding says that 401k's, IRA's, and the primary house are protected if there was a lawsuit or does it differ by each state? I honestly don't know
Would they take our cars away or would we be allowed to keep them?
If I am correct about above, an umbrella insurance would be needed to cover any taxable accounts we my have such as CD's/Savings/I-bonds/brokerage accounts and probably other real property that people own.

We've always been loyal customers of Erie Insurance since we moved to NC and bought a house almost 20 years ago.
We added $1M umbrella with Erie perhaps 15 years ago.
Thanks to the discussion on the other thread, it immediately prompted me to email my agent's office to bump up to $2M because our taxable accounts are definitely over $1M, but still quite away from $2M (unless this market keeps gaining like crazy).
Our oldest child will start driver's ed soon and therefore I think it was definitely time to increase our umbrella's limit. However, I wonder whether we should wait until our taxable accounts cross $2m or/and our 2nd child starts driver's ed in 3 years before bumping to $3M or do it much sooner?
In order to qualify for $3m, we would need to pass the underwriting process.

TIA for sharing your thoughts and knowledge.
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Old 04-09-2021, 06:53 PM   #2
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Looks to me like you're plenty worried about a lot of variables. All of the legitimate. I asked this same question to my insurance agent, a very seasoned and smart person.




He said. "If a person in the same situation as you injured every person in your family driving down the road....how much would you sue them for? I said "everything they have and everything they'll ever earn!" He answered back. "They'd do the same to you." Don't sweat if an umbrella is going to cost you an extra $50 or $100 a year. Another thing that doesn't get mentioned often when you're talking about umbrellas on this forum is this. Usually the passenger in your car is a close friend or relative (often grandchildren). When there is an accident and you're at fault....do you want enough insurance to pay their bills ?? Get a big umbrella and drive safe everyone. Save $100 somewhere else...Nobody wants to get hurt out there.
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Old 04-09-2021, 07:10 PM   #3
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You want to have enough umbrella coverage to have better attorneys than the other guy. Seriously, itís cheap insurance. I pay a little over $1400 for $5M. I also have $1M in my underlying coverage, for a total of $6M.
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Old 04-09-2021, 07:11 PM   #4
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The question of how much coverage you should have on your umbrella policy comes up frequently here. Often the response is enough to cover your net worth. But Iím not sure there is any particular logic to that. People can sue you for any reason and for any amount. Of course they have to win the lawsuit. But if they sue you for $20 million dollars and win, they can attempt to recover anything above your umbrella policy from your assets (minus anything protected by state or federal law).

Realistically, the likelihood of being sued for an amount above your umbrella policy and winning a judgement against you is pretty remote. Frequently lawyers will seek to find out your policy limits and sue for that amount.

If you research umbrella policy coverage limits, you will find that itís virtually impossible to find a personal umbrella policy for more than $5 million. So your real decision is to pick a number between $1M and $5M that allows you to sleep at night.

We pay $450/year with Amica for a $5M policy. Reducing it to less than $5M might save us a few hundred dollars, but we would rather have the peace of mind for the extra few hundred dollars. So I would recommend you ask for pricing on policy limits at $1,2,3,4 and 5 million and then decide what looks best for you.
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Old 04-09-2021, 07:14 PM   #5
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I pay $345 for a $3m umbrella. A bargain.
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Old 04-09-2021, 07:27 PM   #6
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Thanks to the discussion on the other thread, it immediately prompted me to email my agent's office to bump up to $2M because our taxable accounts are definitely over $1M, but still quite away from $2M (unless this market keeps gaining like crazy).
Our oldest child will start driver's ed soon and therefore I think it was definitely time to increase our umbrella's limit.
One thing to bear in mind, is that your underlying auto and HO coverage already has some liability protection. Usually the umbrella underwriter would require $500,000 on the underlying. So, with a $1 million umbrella, you really have coverage for $1.5 million liability---after considering the auto and HO along with your umbrella limits.
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Old 04-09-2021, 08:08 PM   #7
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One thing to bear in mind, is that your underlying auto and HO coverage already has some liability protection. Usually the umbrella underwriter would require $500,000 on the underlying. So, with a $1 million umbrella, you really have coverage for $1.5 million liability---after considering the auto and HO along with your umbrella limits.
Uh, I don't think so.

In the situation you describe, the first $500K of liability is covered by auto or homeowner's as appropriate to the circumstances, then the umbrella kicks in to cover $500,001 to $1M. That's why umbrella is so cheap - it comes with a $500K deductible basically.

So it's $1M total, not $1M on top of the $500K auto/HO. At least that's my understanding.
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Old 04-09-2021, 09:30 PM   #8
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Uh, I don't think so.

In the situation you describe, the first $500K of liability is covered by auto or homeowner's as appropriate to the circumstances, then the umbrella kicks in to cover $500,001 to $1M. That's why umbrella is so cheap - it comes with a $500K deductible basically.

So it's $1M total, not $1M on top of the $500K auto/HO. At least that's my understanding.
When I was shopping I had your same understanding. My agent, and my insurer's policy fine print, both made the point the umbrella policy provides a full $1 million liability coverage in "addition to" and "over and above" any underlying auto and HO limits. I am with Farmers if it makes any difference. Prior to Farmers I was with Pemco. Both those companies said the same thing.

Perhaps the key is whether the "same" insurer underwrites all three policies--the auto, the HO, "and" the umbrella". This is the way I bought my umbrella policy---from same insurer. YMMV
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Old 04-09-2021, 09:45 PM   #9
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It may depend on the insurer. Here is a good explanation of how GEICO handles it. In their scenario it is an additional $1M above the $300K liability from the auto policy.

https://www.geico.com/information/ab...-requirements/

Amica requires $300K liability before they will provide umbrella insurance to us. I think that’s fairly standard for umbrella policies.
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Old 04-09-2021, 09:49 PM   #10
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What are you worried about getting sued for? Do you have a pool someone might drown in? A dog that might attack someone? A teen or other family member who might drive after drinking? Those are worth insuring for.

I too once asked my insurance broker about umbrella coverage. He said generally people, if they are strangers to you, will sue for whatever they think they can get out of you. They won't know your limit or NW, so their lawyers will try to learn everything they can about you, your family, and your lifestyle in order to guess at what you're worth. Social media sites have made this so easy. What kind of car do you drive? Where and how often do you vacation? Who are your friends? What are your hobbies? Where do you live and work? What is your house worth?

Upon hearing this, I stopped worrying and stuck with $1M coverage even though my NW is higher. Why? Because I'm not on social media -- none! I don't own a car either. I rent a 1BR apartment, don't vacation, and even if I did, I'd have nowhere to post the photos. To anyone looking for a jackpot, I look like a dead end.

My broker said in cases like this a litigant generally will settle for whatever the maximum is on a typical basic policy, figuring that fighting for more would be a losing battle. Sure, there are those who will try to sue you for your wages and home, but again, if you look like a shallow pot, what can they do? It's one thing to sue, another thing to win, and yet another to collect. Lawyers know this. Suing someone and getting anything out of it is not so easy. By tailoring your lifestyle, or at least your public exposure of it, you can minimize your risk far more than by raising your limits. Don't bop around town looking like a jackpot.
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Old 04-09-2021, 09:50 PM   #11
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It may depend on the insurer. Here is a good explanation of how GEICO handles it. In their scenario it is an additional $1M above the $300K liability from the auto policy.

https://www.geico.com/information/ab...-requirements/

Amica requires $300K liability before they will provide umbrella insurance to us. I think thatís fairly standard for umbrella policies.
Yes, so total liability coverage in your Geico example is $1,300,000.

Here is another insurance agent website also giving the same explanation (see third paragraph): https://www.rigmetroins.com/blog/umb...lity-insurance.

Umbrella policy liability limit is "in addition to" whatever underlying auto/HO liability limits are in effect.
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Old 04-09-2021, 09:54 PM   #12
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By tailoring your lifestyle, or at least your public exposure of it, you can minimize your risk far more than by raising your limits. Don't bop around town looking like a jackpot.
That takes a lot of the fun out of life! "Living large" is half the fun!
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Old 04-10-2021, 08:55 AM   #13
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NC is a "pure contributory negligence" state, so if the plaintiff is even 1% at fault they cannot collect any monetary damages.

Plus IRAs of any kind & amount (including inherited) are fully protected from creditors, & wage garnishment is not allowed except for federally-guaranteed student loans.

So, only assets in taxable accounts are really at risk here in NC.

I still added an umbrella policy when my kids started driving at age 16.

It's there to incentivize any plaintiff to settle & go away...

EDIT: even if it is our fault...please don't be so arrogant to think you or another family member would never cause an accident.
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Old 04-10-2021, 08:59 AM   #14
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I still added a $2 million umbrella when my kids started driving at 16.

It's there to incentivize any plaintiff to settle & go away...
This is the right idea. I think most people will take what they can get before putting up a bigger fight that would make their lives even more difficult.
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Old 04-14-2021, 07:07 PM   #15
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NC is a "pure contributory negligence" state, so if the plaintiff is even 1% at fault they cannot collect any monetary damages.

Plus IRAs of any kind & amount (including inherited) are fully protected from creditors, & wage garnishment is not allowed except for federally-guaranteed student loans.

So, only assets in taxable accounts are really at risk here in NC.

I still added an umbrella policy when my kids started driving at age 16.

It's there to incentivize any plaintiff to settle & go away...

EDIT: even if it is our fault...please don't be so arrogant to think you or another family member would never cause an accident.
Thank you, Bill, for a very constructive response.

Other people interpreted my OP incorrectly. I wasn't worried about the additional cost on the $3M or $5M policy but was curious about the thought process and math that goes into the decision to get a high policy. Besides, one poster on a different thread gave a link to some scary stories that sometimes you might have the false security by having umbrella insurance. Sometimes the insurance company may come after you too. It basically works like insurance companies in general. They collect the premiums, but it's harder to get their help once you need it. It happens frequently with travel insurance, auto and home insurances as well as with umbrella insurance. Insurance industry flourishes because of the huge fear factor we all have.
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Old 04-15-2021, 07:26 AM   #16
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One of many reasons I have never used my real name on social media. Of course it is easy to look up anyone's home and see what they paid for it, but the rest would be harder. It helps that my actual name is a common one.

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their lawyers will try to learn everything they can about you, your family, and your lifestyle in order to guess at what you're worth. Social media sites have made this so easy. What kind of car do you drive? Where and how often do you vacation? Who are your friends? What are your hobbies? Where do you live and work? What is your house worth?
.
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Old 04-15-2021, 08:13 PM   #17
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I pay $9k/year for $25m umbrella and it includes $5m uninsured/underinsured motorist for us if we get badly hurt in a auto accident and the third party isn’t insured enough. I always kept umbrella equal to net worth but hesitate to keep doing that, I think $25m is enough, though my agent suggested moving to $30-35m for good measure. Maybe in 5 years.
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Old 04-15-2021, 08:28 PM   #18
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I pay $9k/year for $25m umbrella and it includes $5m uninsured/underinsured motorist for us if we get badly hurt in a auto accident and the third party isnít insured enough. I always kept umbrella equal to net worth but hesitate to keep doing that, I think $25m is enough, though my agent suggested moving to $30-35m for good measure. Maybe in 5 years.
What company offers this?
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Old 04-15-2021, 08:30 PM   #19
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What company offers this?
AIG Private Client Group (PCG). My broker/agent received similar quotes from CHUBB and PURE but the price difference was negligible to switch.
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Old 04-16-2021, 09:59 AM   #20
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What company offers this?
State Farm offers up to $25M. We're in the process of increasing ours to NW and this came up in the conversation...Don't see us getting anywhere near that. Premium increase is either $400 or $500 per million over $5M coverage.
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