Umbrella insurance

[hillfronter83]

I would like to pick the wisdom of this board regarding this topic: How much coverage would you suggest? What is the cost? I have built a decent amount of savings, of which about half are in IRA and 401K, the remaining are investments and equity in my home. Your thoughts are highly appreciated.

[bookie71]

Check with your agent as the coverage is cheap.  Probably your IRA and 401 K are exempt from all but the IRS under ERISA.

I remember how shocked i was when I found out that I could get 1,000,000 extra coverage for only $25.00.  This was several years ago, so it might have gone up.

[Jurgis]

$25 for 1M??? Where can I get such rate??

 

I'm in Massachusetts. A year or so ago got quote for $380 for 1M, $680 for 2M from Geico-recommended company (Geico does not offer umbrella in MA).

 

AAA insurance quoted $200 for 1M but only if I transfer all my house/car insurance to them. I have house insurance with them, but they refused to offer umbrella if the car insurance was elsewhere.

 

Might be MA, but these prices seemed very steep for me.

 

[leeway]

25 for extra 1M policy is still very cheap. I have Geico and the difference between 1M and 2M is about 150, a little over 400 for 2M.

 

I think 401K money are mostly protected from creditors, but not IRAs. So I hesitate to convert 401Ks to IRAs.  Anyone has a different opinion on this?

[adesigar]

From what I remember 401ks are fully protected. IRA's depend on state

 

http://www.irafinancialgroup.com/selfdirectedassetprotection.php

 

[benchmark]

Resurrecting this thread.

 

How much umbrella insurance should one get? How to think about this?

 

There are talks about getting coverage equal to your assets, but that obviously doesn't make sense. However, $1M seems to be too small as well....

 

thanks.

[redhots]

I just did a quick quote on USAA.  $43.58/month for 1 million.    $65.36/month for 2 million. 

 

 

You are required to have these minimums for that quote.

 

Auto Insurance

Bodily Injury $300,000 limit per person / $500,000 limit per accident

Property Damage $100,000 limit per accident

 

Homeowners/Renters Insurance

Personal Liability $300,000 limit per occurrence

Personal Injury Liability $300,000 limit per occurrence

 

Watercraft Insurance (if applicable)

Personal Liability $300,000 limit per occurrence

[Jurgis]

There are talks about getting coverage equal to your assets, but that obviously doesn't make sense. However, $1M seems to be too small as well....

 

From the last sentence, I assume you are talking about assets being >$1M.

 

IMO if assets are $1M-$10M or so, it makes sense to get umbrella equal to your assets. Might depend on price of course. Or less than assets if you are OK losing the "over-umbrella" part in a really bad situation.

 

Edit2: Actually, scratch the above. Umbrella does not guarantee that you will keep any of your assets. It's only a buffer. So the question is really for how much you can be sued in really bad situation. E.g. you drive over 10 schoolchildren. Probably $10M+. So... you might need umbrella even higher than your assets if you think that's a possible risk.

 

If assets are >$10M, you probably can "self-insure" and assume that you'd be able to fight off or settle any litigation without losing more than $10M... perhaps. I don't really know. Might depend on how rich/exposed you are.

 

Although I still don't have umbrella at all (mostly for reasons that don't apply to others, though price is a bit crappy too), so ./shrug  ::)

 

Edit: redhots USAA quote seems close to what I was quoted in MA. A bit higher actually, but it's possible you can get better deal that USAA quote depending on state and your car/house insurance and who's insuring all that.

[KJP]

 

IMO if assets are $1M-$10M or so, it makes sense to get umbrella equal to your assets. Might depend on price of course. Or less than assets if you are OK losing the "over-umbrella" part in a really bad situation.

 

 

If your assets are well into the seven figures, there are asset protection measures that you should discuss with an attorney or financial planner who specializes in that area.  That is particularly true if you work in a field where you are personally liable for your negligence/malpractice and you take on work that could lead to seven- or eight-figure liability.

[DocSnowball]

We have Amica in Connecticut

$1 million coverage, in excess of underlying coverage

$332 for a year

Roughly 25% of the annual premium for all policies combined is returned to me in the form of a "Dividend"

 

There are talks about getting coverage equal to your assets, but that obviously doesn't make sense. However, $1M seems to be too small as well....

 

From the last sentence, I assume you are talking about assets being >$1M.

 

IMO if assets are $1M-$10M or so, it makes sense to get umbrella equal to your assets. Might depend on price of course. Or less than assets if you are OK losing the "over-umbrella" part in a really bad situation.

 

Edit2: Actually, scratch the above. Umbrella does not guarantee that you will keep any of your assets. It's only a buffer. So the question is really for how much you can be sued in really bad situation. E.g. you drive over 10 schoolchildren. Probably $10M+. So... you might need umbrella even higher than your assets if you think that's a possible risk.

 

If assets are >$10M, you probably can "self-insure" and assume that you'd be able to fight off or settle any litigation without losing more than $10M... perhaps. I don't really know. Might depend on how rich/exposed you are.

 

Although I still don't have umbrella at all (mostly for reasons that don't apply to others, though price is a bit crappy too), so ./shrug  ::)

 

Edit: redhots USAA quote seems close to what I was quoted in MA. A bit higher actually, but it's possible you can get better deal that USAA quote depending on state and your car/house insurance and who's insuring all that.

[Jurgis]

An important aspect that no one has brought up yet is the amount of underlying coverage. If your primary layer is $250,000 that's a different situation than if your primary layer is $5,000,000. And, as weird as it sounds, you can get the same effective coverage with two very different prices depending on the structure of the coverage. A $3M umbrella excess of a $2M primary layer may be cheaper than if you got a $5M primary layer.

 

When you talk about "primary layer", do you mean auto and house? Or something else?

 

From what I see online Geico does not give you a primary over $1M and only for certain situations. So if you want to get $2M primary for any auto situations, I don't see how you do it. Perhaps go to some specialized "rich-guys-only" insurance cos that will screw you through the nose?

 

I haven't checked if the house insurance can have high primary (not for the building itself, but for accidents in it).

 

Also even if you can get high primary auto and house, it still leaves you exposed to non-auto-non-house. Where would you get primary for that?

 

Perhaps I just don't know enough about insurance for rich folks.  8)

And yeah, I see an answer by KJP which indicates that I don't know about that.  8)

[oddballstocks]

I just did a quick quote on USAA.  $43.58/month for 1 million.    $65.36/month for 2 million. 

 

 

You are required to have these minimums for that quote.

 

Auto Insurance

Bodily Injury $300,000 limit per person / $500,000 limit per accident

Property Damage $100,000 limit per accident

 

Homeowners/Renters Insurance

Personal Liability $300,000 limit per occurrence

Personal Injury Liability $300,000 limit per occurrence

 

Watercraft Insurance (if applicable)

Personal Liability $300,000 limit per occurrence

 

Wow, that's REALLY expensive.  I have a $1m policy for $120/yr in Pennsylvania.

 

Question on all of this is what's the risk level?  And what are you protecting against?  I have a business as well as a house with a pool, those are two identifiable risks I have insurance against.

 

I know a lot of people are worried about "being sued"  but let me ask this, sued for what?  Sued for being rich?  The retort is people sue for anything.  Here's my retort, call up your lawyer and say you want to sue a rich person for something stupid, the type of reason you're worried that you might get sued for.  The lawyer will say "sure, I'll sue, and I'll bill hourly."  That is if they'll stake their reputation on it at all, most won't take it.

 

The way to avoid being sued is to ensure in your business dealings (where large financial risk might be present) to make sure you have solid contracts.  Pay for a lawyer to draft it, don't download something online.

 

In your personal life if you have or do risky things like have a pool, trampoline, home made firework shows etc then get umbrella insurance and call it a day.  And if you have risky toys, motorcycle, atv, dirt bike then buy a solid life insurance.

 

I have met a lot of well paid people who live utterly risk free lives in suburbia, who drive Camrys, who won't even risk mowing the lawn themselves, who work in an air conditioned cube and are afraid of being sued by some bogeyman.  They can't articulate what they'll be sued for, or why, they're just afraid.  If this is your case take a step back and reconsider, you probably don't need an umbrella policy.  If you can identify a risk then you probably need one.

[Jurgis]

I have a $1m policy for $120/yr in Pennsylvania.

 

That's super cheap.

 

In terms of bogeymen, I think auto is the biggest risk for me. E.g. you accidentally plow 2 cars with 4 people each. That's immediate >$5M possibly. I'd probably go with $2M auto if Geico offered it.

 

I agree with most of the rest you wrote. No pool at house, no parties with fireworks. There's a slight risk that some idiot  ;) friend  ;) might sue for something I said about stocks haha and they took as an "advice". But I'm not losing sleep about it. Just to be sure: nothing I say about stocks is an advice.  ;) oddball probably has 10x of that risk anyway and I guess he sleeps fine too.  ;)

[Guest MikeTheCannon]

An important aspect that no one has brought up yet is the amount of underlying coverage. If your primary layer is $250,000 that's a different situation than if your primary layer is $5,000,000. And, as weird as it sounds, you can get the same effective coverage with two very different prices depending on the structure of the coverage. A $3M umbrella excess of a $2M primary layer may be cheaper than if you got a $5M primary layer.

 

When you talk about "primary layer", do you mean auto and house? Or something else?

 

From what I see online Geico does not give you a primary over $1M and only for certain situations. So if you want to get $2M primary for any auto situations, I don't see how you do it. Perhaps go to some specialized "rich-guys-only" insurance cos that will screw you through the nose?

 

I haven't checked if the house insurance can have high primary (not for the building itself, but for accidents in it).

 

Also even if you can get high primary auto and house, it still leaves you exposed to non-auto-non-house. Where would you get primary for that?

 

Perhaps I just don't know enough about insurance for rich folks.  8)

And yeah, I see an answer by KJP which indicates that I don't know about that.  8)

 

I should start by saying that I'm talking in general terms and, perhaps more importantly, my experience is with Canadian commercial insurance. That said, I do have some experience with the US.

 

When I'm talking about the primary layer I'm talking about both auto and home. Generally you would have a primary layer for your home policy and then another one for auto policy. These layers would be independent of each other and do not necessarily need to be of the same value (home could be $1M while auto is $500,000). The umbrella would "sit on top" or "cover" both simultaneously (which is where the term "umbrella" comes from).

 

Geico may not offer more than $1M coverage, but other companies certainly might. I know in Canada $2M would be considered standard coverage on an auto policy and you can easily go up to $5 M without anyone batting an eye. I know some US states have standard auto coverage in the $500,000 range which seems absolutely insane to me give the litigious nature of the US and the lack of universal healthcare.

 

"Non-auto-non-house" isn't really a thing. Again, every company is different, but generally speaking a house policy (assuming you have liability coverage with it) will automatically provide coverage for "non-auto-non-house" losses. If you read you Insurance policy check the following things: 1) Territory Coverage 2) Who is considered an "Insured" 3) What is excluded (generally policies are considered "all risk" which means they start by saying "we cover everything!" and then go on to say "except these things...". Effectively they list things that they wont cover instead of things that they will cover.). In short, your home policy likely provides coverage for things that happen away from your house cause by one who is 1) you 2) your spouse 3) your legal dependent

[benchmark]

I just did a quick quote on USAA.  $43.58/month for 1 million.    $65.36/month for 2 million. 

 

 

You are required to have these minimums for that quote.

 

Auto Insurance

Bodily Injury $300,000 limit per person / $500,000 limit per accident

Property Damage $100,000 limit per accident

 

Homeowners/Renters Insurance

Personal Liability $300,000 limit per occurrence

Personal Injury Liability $300,000 limit per occurrence

 

Watercraft Insurance (if applicable)

Personal Liability $300,000 limit per occurrence

 

Wow, that's REALLY expensive.  I have a $1m policy for $120/yr in Pennsylvania.

 

Question on all of this is what's the risk level?  And what are you protecting against?  I have a business as well as a house with a pool, those are two identifiable risks I have insurance against.

 

I know a lot of people are worried about "being sued"  but let me ask this, sued for what?  Sued for being rich?  The retort is people sue for anything.  Here's my retort, call up your lawyer and say you want to sue a rich person for something stupid, the type of reason you're worried that you might get sued for.  The lawyer will say "sure, I'll sue, and I'll bill hourly."  That is if they'll stake their reputation on it at all, most won't take it.

 

The way to avoid being sued is to ensure in your business dealings (where large financial risk might be present) to make sure you have solid contracts.  Pay for a lawyer to draft it, don't download something online.

 

In your personal life if you have or do risky things like have a pool, trampoline, home made firework shows etc then get umbrella insurance and call it a day.  And if you have risky toys, motorcycle, atv, dirt bike then buy a solid life insurance.

 

I have met a lot of well paid people who live utterly risk free lives in suburbia, who drive Camrys, who won't even risk mowing the lawn themselves, who work in an air conditioned cube and are afraid of being sued by some bogeyman.  They can't articulate what they'll be sued for, or why, they're just afraid.  If this is your case take a step back and reconsider, you probably don't need an umbrella policy.  If you can identify a risk then you probably need one.

 

Agreed on being analytical. My primary motivation is that we have teenagers and they'll be driving in a year. I'm worried mostly that they'll get into an accident that's beyond what auto insurance can cover. We are also building a house -- not sure how much liability we are in for if some worker get injured on the site.

[oddballstocks]

I just did a quick quote on USAA.  $43.58/month for 1 million.    $65.36/month for 2 million. 

 

 

You are required to have these minimums for that quote.

 

Auto Insurance

Bodily Injury $300,000 limit per person / $500,000 limit per accident

Property Damage $100,000 limit per accident

 

Homeowners/Renters Insurance

Personal Liability $300,000 limit per occurrence

Personal Injury Liability $300,000 limit per occurrence

 

Watercraft Insurance (if applicable)

Personal Liability $300,000 limit per occurrence

 

Wow, that's REALLY expensive.  I have a $1m policy for $120/yr in Pennsylvania.

 

Question on all of this is what's the risk level?  And what are you protecting against?  I have a business as well as a house with a pool, those are two identifiable risks I have insurance against.

 

I know a lot of people are worried about "being sued"  but let me ask this, sued for what?  Sued for being rich?  The retort is people sue for anything.  Here's my retort, call up your lawyer and say you want to sue a rich person for something stupid, the type of reason you're worried that you might get sued for.  The lawyer will say "sure, I'll sue, and I'll bill hourly."  That is if they'll stake their reputation on it at all, most won't take it.

 

The way to avoid being sued is to ensure in your business dealings (where large financial risk might be present) to make sure you have solid contracts.  Pay for a lawyer to draft it, don't download something online.

 

In your personal life if you have or do risky things like have a pool, trampoline, home made firework shows etc then get umbrella insurance and call it a day.  And if you have risky toys, motorcycle, atv, dirt bike then buy a solid life insurance.

 

I have met a lot of well paid people who live utterly risk free lives in suburbia, who drive Camrys, who won't even risk mowing the lawn themselves, who work in an air conditioned cube and are afraid of being sued by some bogeyman.  They can't articulate what they'll be sued for, or why, they're just afraid.  If this is your case take a step back and reconsider, you probably don't need an umbrella policy.  If you can identify a risk then you probably need one.

 

Agreed on being analytical. My primary motivation is that we have teenagers and they'll be driving in a year. I'm worried mostly that they'll get into an accident that's beyond what auto insurance can cover. We are also building a house -- not sure how much liability we are in for if some worker get injured on the site.

 

Yeah teenage drivers are killer to your wallet.  A friend was telling me he knows someone with a corvette, they have other cars and a 16 yr old.  The insurance company said that it would be $1k per month to insure the kid because there is a chance they could drive the sports car.  This guy said there was no way the kid would drive it, but the company said they had no way of knowing that.  So he sucked it up and paid.

 

For the house your contractor's insurance should cover everything until it's completed.  While you own the land they should have insurance for the entire project.

 

When I've done larger projects I've asked about contractor insurance.  In a few situations (trees) I've gone with more professional outfits that cost a bit more compared to the fly by night that I wasn't sure was insured.

 

If a worker gets injured at the site they have a claim against their employer, now the person who owns the underlying property.

[Read the Footnotes]

For price comparison purposes: I've got a $1 million umbrella policy for $240/yr from Amica.

 

Don't forget that in the U.S., you might be able to shelter your equity in your home with a homestead provision, but this varies by state. Some states automatically provide homestead protection. Some states offer homestead protection, but require you to file a form that declares your home your homestead. In cases such as that, the hassle and any filing fees for filing a homestead declaration costs less per dollar sheltered than a single year of umbrella insurance, and the protection lasts as long as the house remains your principal residence.

 

Also, trusts, LP's and LLC's can provide similar asset protection benefits.

[benchmark]

 

 

Also, trusts, LP's and LLC's can provide similar asset protection benefits.

 

Does this mean that if I establish a trust or LLC, and move my asset there, then i'll get protection. I thought that one can file claim against a trust or LLC...

[Read the Footnotes]

 

 

Also, trusts, LP's and LLC's can provide similar asset protection benefits.

 

Does this mean that if I establish a trust or LLC, and move my asset there, then i'll get protection. I thought that one can file claim against a trust or LLC...

 

Yes a creditor will usually try to attach all assets, and occasionally they will be successful penetrating a trust, LP, or LLC especially if you have not followed all of "the rules" that improve your odds in the event of a judgement against you. Some of these "rules" are quite obvious, like don't be a criminal jerk, and others are a bit closer to fine print "gotcha's".

 

The specifics of your case would be well beyond the scope of this board, and would be best addressed with a professional. Most people will incur ongoing annual legal and accounting expenses through these techniques, so for most people it is usually not worth pursuing unless you have a very large net worth (think many millions) and the estate planning techniques offer additional benefits to you, which they might.

[LongHaul]

Some things to keep in mind.

 

1.  If you are paying $250 per year that equals 2.5 bps.  So if the insurance company is paying out half in claim costs then the underlying long run benefit equals about 1.25 bps.  Round down and you get 1 bps risk per year.  That is extremely small 1/10,000.  Of course it can be catastrophic.

 

2. If you are an average risk insurance is almost always negative expected value. 

 

 

[Spekulatius]

An insurance agent explained umbrella insurance this way - you want to make sure that the insurance is large enough, such that the insurance company fights tooth and nails legally to prevent an adverse outcome. Beyond that, the total sum does not play such a significant role, since the lawsuit amounts can be totally arbitrary anyways.

 

In most cases, the counterparty will look for a settlement.

[Guest MikeTheCannon]

Some things to keep in mind.

 

2. If you are an average risk insurance is almost always negative expected value.

 

Ah but don't forget expected value =/= expected utility!

[Guest cherzeca]

utility v value is a good concept to keep in mind re insurance.  if you are newly retired, you spend alot of time thinking about how to grow nest egg but maybe should spend more time how to protect nest egg.  protecting the downside always has high utility.

[boilermaker75]

An insurance agent explained umbrella insurance this way - you want to make sure that the insurance is large enough, such that the insurance company fights tooth and nails legally to prevent an adverse outcome. Beyond that, the total sum does not play such a significant role, since the lawsuit amounts can be totally arbitrary anyways.

 

In most cases, the counterparty will look for a settlement.

 

Exactly, having an insurance company to defend you in court is the primary benefit.

 

You want at least $1 million to cover nuisance lawsuits.

 

If you have a net worth of $1 million, have a $1 million umbrella and loose a $2 million lawsuit you are wiped out.

 

So I have a $5 million policy with GEICO, which costs $756 per year. It is unlikely I will ever need this amount of coverage, but the probability is not zero.

 

[DooDiligence]

An insurance agent explained umbrella insurance this way - you want to make sure that the insurance is large enough, such that the insurance company fights tooth and nails legally to prevent an adverse outcome. Beyond that, the total sum does not play such a significant role, since the lawsuit amounts can be totally arbitrary anyways.

 

In most cases, the counterparty will look for a settlement.

 

Exactly, having an insurance company to defend you in court is the primary benefit.

 

You want at least $1 million to cover nuisance lawsuits.

 

If you have a net worth of $1 million, have a $1 million umbrella and loose a $2 million lawsuit you are wiped out.

 

So I have a $5 million policy with GEICO, which costs $756 per year. It is unlikely I will ever need this amount of coverage, but the probability is not zero.

 

Brilliant, I never thought of it that way!

 

Thanks in advance...