Insurance Umbrella Size--How Much

[nwsteve]

I am doing a review of our rental fire and liability insurance which include an umbrella. What mechanism is appropriate to determine the $ size of the Umbrella.
For example, say we have apts with retail value of 1 Million. The units individually have 1 million liability coverage. Plus, we currently have another 1 Million in the Umbrella for total liability coverage of 2 Million.
Enough? Too Much?
Or, should we be looking at some percentage of our personal networth to determine $$ size of Umbrella?
Thanks

 

[RetireeRobert]

From what I understand, the theory of umbrella liability insurance is to protect you against lawsuits that would wipe out your assets. Or at least the portion of assets you want protected.

So, my understanding is, you add up your total assets. Then you look at what underlying liability coverage you have (for example, say $500,000 on my auto insurance, and a similar $500000 on my HO policy). Then if I have assets totaling $1.5 million, I would get a $1 million umbrella policy to protect me for liability up to the $1.5 million.

In your case your rentals already have $1 million umbrella. But maybe your rental PLUS your other assets such as you home and IRA's are $2.5 million. Then enough more umbrella liability over underlying coverage might be desired to protect "all" of your net worth. It is possible to go overboard, I think with too much umbrella coverage. I figure the likelihood of some lawsuit happening that would wipe out "all" my net worth is pretty slim.

 

[Dash man]

I am doing a review of our rental fire and liability insurance which include an umbrella. What mechanism is appropriate to determine the $ size of the Umbrella.

For example, say we have apts with retail value of 1 Million. The units individually have 1 million liability coverage. Plus, we currently have another 1 Million in the Umbrella for total liability coverage of 2 Million.

Enough? Too Much?

Or, should we be looking at some percentage of our personal networth to determine $$ size of Umbrella?

Thanks

I’ve heard a rule of thumb to have enough to cover your net worth, but in reality it means nothing. I look at it by what the umbrella insurance costs vs how much I want the insurance lawyers to fight for me. To me umbrella insurance is relatively cheap, so I have $5M on top of my primary policies.

 

[RetireeRobert]

...I look at it by what the umbrella insurance costs vs how much I want the insurance lawyers to fight for me. To me umbrella insurance is relatively cheap, so I have $5M on top of my primary policies.

Good thought---have a big enough umbrella policy that the insurance company lawyers will fight tooth and nail for you!

 

[Ready]

I pay less than $500 for $5 Million of umbrella coverage. I can’t see any reason to reduce it since it would likely only result in a savings of maybe $100-$200. Generally $5M is the most you can get from personal insurance policies without buying something very expensive.

 

[RetireeRobert]

I pay less than $500 for $5 Million of umbrella coverage. I can’t see any reason to reduce it since it would likely only result in a savings of maybe $100-$200. Generally $5M is the most you can get from personal insurance policies without buying something very expensive.

Good to know. I might reconsider and bump up the amount of my coverage. It is pretty cheap. What's an extra $100 or $200 a year to protect a few million?

 

[Gumby]

Good to know. I might reconsider and bump up the amount of my coverage. It is pretty cheap. What's an extra $100 or $200 a year to protect a few million?

That is my reasoning.

 

[Jerry1]

So, my understanding is, you add up your total assets. Then you look at what underlying liability coverage you have (for example, say $500,000 on my auto insurance, and a similar $500000 on my HO policy). Then if I have assets totaling $1.5 million, I would get a $1 million umbrella policy to protect me for liability up to the $1.5 million.

Then they sue you for $3M and you’re still wiped out.

The thought of having enough to bring the high priced lawyers to your defense makes a lot of sense. Beyond that, you’d need to analyze the potential you have to cause damage. I guess you could drive into the support beam of a bridge, collapse it and cause $$$ millions of dollars of damage, but how likely is something like that. We ended up with a $2M policy based on the price point making the most sense for us. It’s under $300 per year which we view as legal coverage insurance.

 

[srblanco7]

I pay less than $500 for $5 Million of umbrella coverage. I can’t see any reason to reduce it since it would likely only result in a savings of maybe $100-$200. Generally $5M is the most you can get from personal insurance policies without buying something very expensive.

Always heard the rule of thumb of 1x net worth in umbrella coverage. We maintain $5M in umbrella and pay roughly $1k/year for the coverage, noting that we have an 18yo driver and will soon have a 16yo driver - which, I believe, is part of the reason for the additional cost.

 

[FLSUnFIRE]

Good thought---have a big enough umbrella policy that the insurance company lawyers will fight tooth and nail for you!

That's my thinking... premiums are less than a blank check to a lawyer and I'm sure my insurer has better ones than I'd stumble onto. Fortunately, most of my assets are in protected classes (retirement accounts and homesteaded home) so even if I were to get hit hard, I could probably claim bankruptcy and get by. The umbrella gives me peace of mind given our sue-happy culture.

 

[donheff]

I'm in the enough to motivate good lawyering school. If you do something bad enough you will be sued for far more than your umbrella policy. Witness the suit against Rudy Giuliani for $1.3B.

 

[JoeWras]

The more I've read about this, the more I realize the NW doesn't matter. So, yeah, get enough to motivate your insurance company lawyers. That should cover most issues.

If you are really dumb and get drunk and paralyze a smart teenager with a life of care without earnings ahead, then any amount of insurance won't work because the insurance company will find an out clause due to your being drunk. Say you aren't drunk, just ran a red light, then $1M probably isn't enough either. A few million might be enough. It will certainly motivate your insurance company lawyers.

 

[ncbill]

The more I've read about this, the more I realize the NW doesn't matter. So, yeah, get enough to motivate your insurance company lawyers. That should cover most issues.

If you are really dumb and get drunk and paralyze a smart teenager with a life of care without earnings ahead, then any amount of insurance won't work because the insurance company will find an out clause due to your being drunk. Say you aren't drunk, just ran a red light, then $1M probably isn't enough either. A few million might be enough. It will certainly motivate your insurance company lawyers.

It's not just for access to a legal team...consider you (or a family member) might actually be at fault.

I had a friend whose younger sibling broke into their place to get the keys to "borrow" the car...said sibling was not paying attention, ran a red light, and crippled a single mother with young children.

Sure, my friend could have thrown their sibling under the bus but chose to keep their mouth shut knowing they could well be hit with a judgment over their insurance limit.

In the end the injured party ended up settling for the insurance limit, which was probably around $100k...so I keep a $2 million umbrella ($2.5 million total auto coverage) in case I, my spouse, or one of my kids does something similar.

And as for having to pay a judgment over your insurance limit, that's come up for discussion in many threads spanning several years over on bogleheads forums & it's clear with a seven figure umbrella such doesn't happen to the run-of-the-mill individual defendant...unless they're impaired, so don't drive DUI.

 

[mckittri2000]

We pay $140/yr for a 1 million dollar umbrella policy.

 

[ExFlyBoy5]

I'm in the enough to motivate good lawyering school. If you do something bad enough you will be sued for far more than your umbrella policy. Witness the suit against Rudy Giuliani for $1.3B.

Then don't do anything as stupid as...well...

We recently bumped ours to 2MM and the increase was less than $20 for the year over the 1MM policy. I would assume the good folks at USAA would do a pretty good job defending any suit brought against us.

If you are really dumb and get drunk and paralyze a smart teenager with a life of care without earnings ahead, then any amount of insurance won't work because the insurance company will find an out clause due to your being drunk. Say you aren't drunk, just ran a red light, then $1M probably isn't enough either. A few million might be enough. It will certainly motivate your insurance company lawyers.

I would also note that bankruptcy will probably not protect you in the case of an injury because of a DUI or another "willful and malicious injury" - NOT legal advice.

And as for having to pay a judgment over your insurance limit, that's come up for discussion in many threads spanning several years over on bogleheads forums & it's clear with a seven figure umbrella such doesn't happen to the run-of-the-mill individual defendant...unless they're impaired, so don't drive DUI.

The legal system does kinda help with this. Most injury claims can be settled fairly quick with a split w/ the attorney that is "somewhat" reasonable, say 70/30. If you decide to take it farther...say all the way to trial, then the amount of the split goes quite a bit more to the attorneys. The result is that *most* folks will settle early on for immediate cash.

 

[RetireeRobert]

We pay $140/yr for a 1 million dollar umbrella policy.

I pay $182 based on having two cars not one, but only one home, no second homes. I think I might be paying too much for my umbrella. Only one driver too.

What insurer are you with?

 

[RetireeRobert]

....We ended up with a $2M policy based on the price point making the most sense for us. It’s under $300 per year which we view as legal coverage insurance.

Yes, price point that makes sense. Good way to look at it. $2 million for under $300 seems to make sense to me too, as you say, cheap legal insurance coverage.

What insurer are you with?

 

[ExFlyBoy5]

Yes, price point that makes sense. Good way to look at it. $2 million for under $300 seems to make sense to me too, as you say, cheap legal insurance coverage.

What insurer are you with?

I know you didn't ask me, but just as a reference, our 2MM policy is $262 a year w/ USAA. One home and two cars.

 

[RetireeRobert]

I know you didn't ask me, but just as a reference, our 2MM policy is $262 a year w/ USAA. One home and two cars.

Thanks. Nice to know for reference.

 

[medved]

We have $10mm, group coverage, and I think it costs around $1600/year. At a certain point, I am not sure measuring coverage by net worth makes sense. If you had $100mm nw, would you need $100mm umbrella? Seems to me the cap should be the most damage you can reasonably foresee someone successfully claiming against you. You would have to do some pretty bad damage to have a claim that you could not settle for $5-$10mm.

 

[Jerry1]

....We ended up with a $2M policy based on the price point making the most sense for us. It’s under $300 per year which we view as legal coverage insurance.

Yes, price point that makes sense. Good way to look at it. $2 million for under $300 seems to make sense to me too, as you say, cheap legal insurance coverage.

What insurer are you with?

I’m with AAA. Actual price is about $270 if I recall correctly. I could have done better a year ago, but I put in an in ground pool. I’m sure that didn’t help. However, our agent did say not having a diving board or slide did help. We also have high coverage on our cars and home owners. I think an umbrella policy requires certain minimums (which are pretty high). But that’s just the game and I’m not going to try to find a way around it and risk getting burned.

 

[Gumby]

I know you didn't ask me, but just as a reference, our 2MM policy is $262 a year w/ USAA. One home and two cars.

You're getting a way better deal than me. We also have a USAA $2M umbrella policy. One home and three cars (but only two drivers). But ours is $612 per year.

 

[ExFlyBoy5]

You're getting a way better deal than me. We also have a USAA $2M umbrella policy. One home and three cars (but only two drivers). But ours is $612 per year.

Wow...that is a big difference! I wonder why such a spread?

I could have done better a year ago, but I put in an in ground pool. I’m sure that didn’t help. However, our agent did say not having a diving board or slide did help.

Oddly enough, when we changed over to USAA, I told them about our pool and they didn't care and it didn't affect the rates.

 

[REWahoo]

Underwriting for umbrella policies seems to be a dart-board exercise. For reference, our USAA $1M policy was $348/yr for 2 drivers, 2 cars, a truck and an RV (trailer). Sold one of the cars and it dropped to $216.

 

[gauss]

Hmmm.. I guess I don't understand why anyone would maintain an umbrella policy for their entire net worth.

It is that my understanding that 401ks are not subject to collections under current Federal law and it has been this way for quite some time.

Depending on your state law, IRAs may also be protected.

I believe also that the income from Social Security and DB pensions are also protected.

If I were to get an umbrella policy, I would, at a maximum, only cover my unprotected assets -- ie. real estate, after tax accounts etc.

Perhaps the risk is that these asset protection laws could change at some point in the future perhaps.

-gauss