Need Umbrella Policy?

[LivingTheory]

I'd love to hear the group's take on if acquiring an Umbrella policy makes sense. A few calculators online said that it's not necessary for our current assets but I think looking at the minutiae changes that answer.

The majority of our assets are in retirement accounts or an HSA. Only about $40k is in after-tax accounts for our emergency fund, revolving checking, and larger slush fund. Excluding any ERISA accounts, our state provides creditor protection up to $1MM of retirement savings. We're below that mark in our IRAs so no liability concern. However, our home equity is much more exposed.

We live in a state that only protects $75k equity through homestead exemption. This is a hard cap even if married (doesn't double). A sale could be forced to pay out the equity above that amount if a lawsuit forces us into bankruptcy. Although we'd still have our retirement assets intact and that could serve as a last resort to avoid bankruptcy. Our home equity is around $320k now and will likely be closer to $500k within three years.

This homestead exemption seems laughable having lived in states with unlimited protection. Either way, it's reality and something that we need to plan around. My thought is that we should get an Umbrella policy for ~$1MM even though our susceptible assets are well below that mark. I definitely wouldn't consider us "judgment proof" so I'd like better peace of mind.

Please let me know if I'm missing anything or if this seems like a logical course of action. We carry the highest liability on HO and Auto already. Thank you.

Side Note: Home is owned fee simple and not in a trust. Our estate plan creates a testamentary trust since probate here is pretty reasonable. I'm not sure if having it owned by a trust would change the liability question.

 

[Out of Steam]

We have roughly similar assets, nearly all in home equity or retirement accounts, and bought our first umbrella policy a couple of years ago.

My bigger concern was protection from legal defense costs under an umbrella policy rather than covering direct costs from a liability judgement.

 

[wmc1000]

+1 on legal defense, we bought our policy 3 years ago - $1mm for $164 stayed the same for year 2 went down to $125 for this next year.

 

[dak2018]

One take I rarely hear mentioned on threads discussing insurance is the notion of making the aggreived party whole, rather than concentrating on simply covering one's own assets. If I do something boneheaded or negligent and cause injury to another party, I would like to make them whole as best as I can and insurance is the mechanism that allows me to do that. My nightmare is injuring a relatively young person and affecting their ability to lead a productive life.

To that end I consider an umbrella policy an important factor in achieving peace of mind - we are at least attempting to cover damage that we might unintentionally cause.

 

[youbet]

My thought is that we should get an Umbrella policy for ~$1MM even though our susceptible assets are well below that mark.

With a $1mm umbrella, if a $1.5mm judgement is made against you, you would still loose all your susceptible assets. I picked my umbrella amount thinking about both my susceptible assets and the decreasing probability of higher awards. Your susceptible assets are vulnerable if the award is greater than the umbrella but the probability of having a $1.5mm award against you is greater than having a $1.0mm award against you, etc.

 

[Sunset]

One take I rarely hear mentioned on threads discussing insurance is the notion of making the aggreived party whole, rather than concentrating on simply covering one's own assets. If I do something boneheaded or negligent and cause injury to another party, I would like to make them whole as best as I can and insurance is the mechanism that allows me to do that. My nightmare is injuring a relatively young person and affecting their ability to lead a productive life.

To that end I consider an umbrella policy an important factor in achieving peace of mind - we are at least attempting to cover damage that we might unintentionally cause.

A nice thought, but the law doesn't work that way, and quite possibly you could nullify your insurance if you expressed your guilty actions as the cause of the injury.

However, it's true having a $2 Million umbrella coverage will ensure the victim gets at least $2 Million if they prove in court/negotiations it's needed.

 

[Midpack]

I have an umbrella policy, cheap above and beyond insurance. Only you can decide. There are dozens of articles about it online like https://www.fidelity.com/viewpoints/wealth-management/do-you-need-umbrella-insurance

 

[Dash man]

First of all, you need to understand what umbrella coverage does for you. If you have $500,000 liability with your car and home insurance, that will pay first. If you buy $1M umbrella coverage, it provides an additional $1M coverage for a total of $1.5M.
Trying to just have enough coverage to protect your assets is a common but unwise method of determining the amount you should have. As others have mentioned, legal fees add to any judgement costs. Judgements can also be above your asset levels with that judgement and associated garnishments of income still hanging over your head.
As someone above mentioned, if you ruined a life by an accident you are determined to be at fault for, wouldn’t you want that person cared for?
Umbrella insurance is cheap for what you get. We have a short term beach rental on the Jersey Shore, two townhome rentals and a Florida condo besides our primary home. We also have three cars. So we have $1M underlying coverage and $5M umbrella coverage. No matter what happens, the insurance company will get some good lawyers to fight for us.

 

[pjm-7]

I see that you are in your early 30's. One thing to consider is your future earnings. Your wages could possibly be garnished well into the future. The excess liability coverage could provide an immediate settlement and be done with that financial obligation. With garnished wages you may not achieve your financial independence as soon as you plan.

 

[ncbill]

A nice thought, but the law doesn't work that way, and quite possibly you could nullify your insurance if you expressed your guilty actions as the cause of the injury.

However, it's true having a $2 Million umbrella coverage will ensure the victim gets at least $2 Million if they prove in court/negotiations it's needed.

You don't need to admit guilt...your insurance company determines whether or not you were at fault...you're still covered for that accident, of course, but they might refuse to renew your umbrella and possibly auto.

It's not the end of the world...over on bogleheads forums a poster was upset his company found him at fault and paid out the insurance limits (auto plus umbrella) as a settlement then, IIRC, canceled him, but he was able to obtain new coverage from a different insurer by paying a little more.

I would urge everyone reading this thread not think that an accident could never be your (or anyone in your family's) fault.

I added a $2 million umbrella (auto limit raised to $500k) when my first kid started driving since they're the most statistically likely in our family to be in an accident, so if they hurt anyone there's $2.5 million immediately available as compensation.

 

[ncbill]

With a $1mm umbrella, if a $1.5mm judgement is made against you, you would still loose all your susceptible assets. I picked my umbrella amount thinking about both my susceptible assets and the decreasing probability of higher awards. Your susceptible assets are vulnerable if the award is greater than the umbrella but the probability of having a $1.5mm award against you is greater than having a $1.0mm award against you, etc.

But the above never happens in real life...the plaintiff's attorney would have told the client to settle for the insurance limits rather than go to trial which could easily take several years. Just like a Realtor, an attorney working on contingency wants to "close the sale" ASAP so they can get paid.

BTW, with a $1 million umbrella, coverage limits are likely to be $1.3 - $1.5 million, including the underlying auto coverage.

 

[Gumby]

One take I rarely hear mentioned on threads discussing insurance is the notion of making the aggreived party whole, rather than concentrating on simply covering one's own assets. If I do something boneheaded or negligent and cause injury to another party, I would like to make them whole as best as I can and insurance is the mechanism that allows me to do that. My nightmare is injuring a relatively young person and affecting their ability to lead a productive life.

To that end I consider an umbrella policy an important factor in achieving peace of mind - we are at least attempting to cover damage that we might unintentionally cause.

The insurance company will have something to say about that.

 

[Aerides]

I don't think of my umbrella policy in terms of "does this protect my money" but, rather "does this incentivize the insurance company to fight with a good lawyer"

People can win judgments that completely ignore assets. You could have no real money and get sued for $2m if someone falls on your property. Asset don't cap awards.

 

[tenant13]

+1 on legal defense, we bought our policy 3 years ago - $1mm for $164 stayed the same for year 2 went down to $125 for this next year.

Wow, this is quite a great price. What insurer? I have Auto policy at Geico and it's very reasonable but their umbrella policy quotes were: $313/1mil, $563/2mil, $750/3mil - yearly.

Who would you guys recommend for umbrella? I don't think I need to do Geico just because I have Auto with them.

 

[EA-Sports]

Wow, this is quite a great price. What insurer? I have Auto policy at Geico and it's very reasonable but their umbrella policy quotes were: $313/1mil, $563/2mil, $750/3mil - yearly.

Who would you guys recommend for umbrella? I don't think I need to do Geico just because I have Auto with them.

I was looking for umbrella insurance as well and I found that it has to be with the same insurance company as your auto insurance carrier..I was actually quoted slightly higher than you from Progressive because my teenage son just got his driver license.

 

[tenant13]

I was looking for umbrella insurance as well and I found that it has to be with the same insurance company as your auto insurance carrier..I was actually quoted slightly higher than you from Progressive because my teenage son just got his driver license.

Ha, ok. Thx

 

[Dash man]

I was looking for umbrella insurance as well and I found that it has to be with the same insurance company as your auto insurance carrier.

I think they were pulling your chain. It doesn’t have to be with same company. Mine isn’t.

 

[braumeister]

I was looking for umbrella insurance as well and I found that it has to be with the same insurance company as your auto insurance carrier.

I think they were pulling your chain. It doesn’t have to be with same company. Mine isn’t.

With many companies, they have to be consolidated in order to get the best rates.

 

[Dash man]

With many companies, they have to be consolidated in order to get the best rates.

Have you shopped around to find that out? USAA is my primary insurer. They offered a higher price for my umbrella than USLI.

 

[braumeister]

Of course that can happen. But IMHO umbrella insurance is not expensive enough to worry about shopping it around.

 

[Montecfo]

I was looking for umbrella insurance as well and I found that it has to be with the same insurance company as your auto insurance carrier..I was actually quoted slightly higher than you from Progressive because my teenage son just got his driver license.

Not in my experience. You just have to meet the required underlying liability thresholds.

But this could vary by state I suppose.

 

[EA-Sports]

Question for those with umbrella insurance..does it matter if it’s just the husband’s name listed as the insured or does it need to be both husband’s and wife’s names? Assuming all family members with driver license, including DS, are listed on the umbrella policy.

 

[Original Wally]

My bigger concern was protection from legal defense costs under an umbrella policy rather than covering direct costs from a liability judgement.

Bingo.



ALSO - claims can come from anywhere: think of someone who gets injured on your property - perhaps falling over a hose on your yard.



Umbrella policies are not THAT expensive, and **could** save a huge hassle.

 

[Car-Guy]

But IMHO umbrella insurance is not expensive enough to worry about shopping it around.

I agree "but" mine went up ~25% this year. Inflation?... Still cheap enough to "just get it" but something else to start watching...

 

[SAinMinn]

My second week of law school, my Civil Procedure teacher said: "Get an umbrella policy, people." His advice remains solid.

And ... make sure you understand the difference between umbrella and excess-liability policies. Google it for more info. Very important.