How Much Under Your Umbrella?

[TromboneAl]

How do you decide on the limit for your umbrella policy?

Generally, people recommend having it equal to your net worth, right? But that doesn't make sense. If your net worth is 1 million, and your policy is 1 million, you could be sued for 2 million.

 

[kz]

I can't say I put much thought into it. <gasp> When the sons were living at home and we had their friends mulling around we had 1 mil. Now that the guys are grown and gone we dropped it down to 1/2 mil.

 

[grumpy]

My umbrella policy is $1M. That is less than our net worth. All insurance is a crap-shoot... so the amount is pretty arbitrary.

Grumpy

 

[Patrick]

I originally went with the minimum my insurance company would write: $1 million.  When I bought rental properties I increased it to $2 million.  Yes, they can go after your assets if you have a big enough judgment, but the umbrella gives you a lot of "breathing room."

 

[SteveR]

Did not really give it much thought But insurance agent thought $2M was enough for liability on the house, cars, cabin, and ATVs. I may bump it up now that I have grandmonkeys running around and playing with my toys.

 

[justin]

You may also consider where you live. If I recall correctly, certain counties in Texas and Oklahoma have very compassionate juries and they consistently award massive damages to plaintiffs. If you live or spend time in one of these counties, you may want to buy more than the $1 or 2 million talked about. In North Carolina where I live, I rarely hear of damages higher than 1 or 2 million. Even those are rare. You may get hit with punitive damages, but I believe most or all states prohibit insurance covering puni's anyway. You really only have to insure against the compensatory damages. Gross negligence (willful and wanton) won't be covered by insurance either.

 

[Texas Proud]

You may also consider where you live.  If I recall correctly, certain counties in Texas and Oklahoma have very compassionate juries and they consistently award massive damages to plaintiffs.  If you live or spend time in one of these counties, you may want to buy more than the $1 or 2 million talked about.  In North Carolina where I live, I rarely hear of damages higher than 1 or 2 million.  Even those are rare.  You may get hit with punitive damages, but I believe most or all states prohibit insurance covering puni's anyway.  You really only have to insure against the compensatory damages.  Gross negligence (willful and wanton) won't be covered by insurance either. 

They changed the Texas law and those high judgements are no longer a problem... in fact, they might have gone a bit to far the other way (and I am a conservative).

 

[malakito]

I agree with you that the general advice makes no sense whatsoever. It makes more sense to me to base the size of the policy on what's the maximum likely damages you could get sued for.

The way I understand it, if you get a judgment against you, it goes against your base policy (homeowners or auto), then to your umbrella, then to your assets, so you're right, getting nailed with a $2M judgment would still wipe you out in the example you gave.

Since I'm an average run of the mill office worker who doesn't really do anything that could get me sued, I decided on just the basic $1M policy. That matched the highest award in my state that could be covered by these kinds of things. If you're a high profile person who does risky stuff -- or live in Texas, apparently -- a higher policy could make sense.

malakito

 

[Peter]

If your net worth is 1 million, and your policy is 1 million, you could be sued for 2 million.

Right, but with an umbrella policy, the insurance company will be on your side. They will fight pretty hard to avoid paying out. And they are experts at that sort of thing.

To my mind, that is one of the advantages of having such a policy.

Peter

 

[justin]

Right, but with an umbrella policy, the insurance company will be on your side. They will fight pretty hard to avoid paying out. And they are experts at that sort of thing.

To my mind, that is one of the advantages of having such a policy.

Peter

Or the insurance company knows you're liable, plans on paying the $1 million anyway, and they put up a half-a$$ defense (on the cheap) leaving you owing damages in excess of your 1 mill coverage. Of course, then you sue the ins. co. (do insurance companies have insurance for these kinds of suits?).

 

[farmerEd]

To me, the whole purpose of having theumbrella policy is exacty to make it painful for the insurance company to pay/settle...if your limits are too low, i.e. 50K on an auto policy, you get in an accident, they just write a check, its not worth defending...if they are on the hook for the first $1million, or better yet the first $2Million, you can assume they will put a serious amount of defense before they settle...and hopefully settle for less than the limit on the policy.

 

[LOL!]

Our insurance company asked us to declare our assets in order to establish why we needed $2M umbrella coverage. Thus, I don't think you can just go out and get excessive coverage.

 

[justin]

Our insurance company asked us to declare our assets in order to establish why we needed $2M umbrella coverage. Thus, I don't think you can just go out and get excessive coverage.

When I was a broke college student (who had fair amount of assets), I was offered a $1 million policy. At that level, I don't think you'd need much of a reason besides "I'm risk averse".

 

[Nords]

How do you decide on the limit for your umbrella policy? 

Generally, people recommend having it equal to your net worth, right?  But that doesn't make sense.  If your net worth is 1 million, and your policy is 1 million, you could be sued for 2 million.

Um, guys, I'm not a lawyer and I don't know the procedure, but I'm betting that if you're found criminally negligent for ramming a school bus while fumbling your latte & cell phone, then the court won't have much sympathy for your debts either.

So we carry liability insurance for our GROSS worth... and that's assuming we had to liquidate everything including our personal possessions, all the way down to my 1970s science-fiction paperback books. With our mortgages there's a pretty substantial difference between gross worth & net worth.

I think the lawsuit has to come up with some reasonable estimate of damages that's independent of your gross worth or your insurance coverage. I look forward to hearing from the board's legal experts.

And I don't own a cell phone or drink lattes.

 

[REWahoo]

And I don't own a cell phone or drink lattes.

That's not the point. No one cares about your coffee drinking habits or your personal rebellion against techology. The moral here is don't fumble and drive.

(This message brought to you by MAFD...Mothers Against Fumbling Drivers)

REW

 

[SteveL]

In considering what limits to buy, it can be helpful to think about the amount of damage you might do. Especially in California, where absurdity is in charge, you could be sued by your grandchildren....it's happened. A better thing is to consider the lifetime income lost and care costs for a seriously injured person. If you are the defendent they will quickly find out how much you are worth via a P.I. (WWW)
In an insurance case, if you are sued for more than your limits, the insurance company will advise you by letter. They will defend you regardless, but won't be paying the excess.
Also, generally, the price goes down as the limit goes up....
On the other hand, umbrella policies are cheap because there are few claims that reach that level.

 

[justin]

Imagine if you rear ended a Beamer full of 30 something neurosurgeons going to the annual neurosurgery conference and maimed or chopped off their hands in the collision (or other such horrible act that would leave them all unable to be neurosurgeons). What would a lifetime of earnings times number of Beamer occupants be? Probably more than 1-2 million. Odds of it happening - pretty small.

 

[SteveR]

On the other hand,

What are the odds of you sueing the Drs. in the Beemer if they hit you?

Insurance scams are everywhere and if you look like you can afford to be sued, you are a target.

 

[SteveL]

Yes, I support the stealth lifestyle, live cheap, dress old but clean, drive old cars (carefully), and look like anything but someone with money. ( You still need an umbrella)

 

[sgeeeee]

. . . The moral here is don't fumble and drive. 

(This message brought to you by MAFD...Mothers Against Fumbling Drivers)

REW

If it's not a latte, what is it that Nords is fumbling with? ? ?

Never mind. I don't want to know.

 

[Nords]

If it's not a latte, what is it that Nords is fumbling with? ? ?

Ya know, I held off posting a response to that because I knew someone else would swoop in to bring it to a new low...

 

[sgeeeee]

Ya know, I held off posting a response to that because I knew someone else would swoop in to bring it to a new low...

You know you can always count on me for that, Nords.

 

[TromboneAl]

The stuffed beaver has a good reply (a real new low). I have tears in my eyes laughing, but I cannot allow him to post it.