The umbrella not only covers auto losses but also losses stemming from your home and personal activities. Have a pool, trampoline, sled, etc? If a kid dies or is seriously injured on your property, buckle up.
It is better to spend a few hundred bucks to protect yourself against a black swan event. Insurance is for catastrophes. If you don't have enough limits you are wasting your money.
Further, the uninsured motorist coverage is a huge factor. Think of the potential costs associated with a family of 4 being hit by an uninsured driver. Sure, your health may pay medical costs but what about pain and suffering, home conversion, loss of spousal benefits.
An umbrella is a no brainer.
Totaled his truck
They found the guy and he only had $25k in insurance
He ended up getting all of that and more with underinsured coverage
Thankfully he did not get a huge settlement as I was told by an attorney that one should hope to never get a huge settlement as the injury would be so catastrophic that future quality of life would suffer
policy, at least here in Colorado. Say you have a 1 million umbrella, you have that much coverage for uninsured/underinsured over and above the primary coverage. It varies from state to state so you need to check your policy. You’re right though, if you get to that coverage you’re probably in pretty bad shape.
can afford. 250/250/500 is what I could get. Most people also need an umbrella policy. 1 million is the starting point and is about $275 per year for most people.
I have two use cases for you on why net worth matters and cause and effect of not having enough.
1) Guy near me had a daughter get into an accident with a semi truck. She was deemed at fault and caused the truck to wreck. It was hauling horses.
The truck company sued for $4 million of damages.
My friend was worth 10's of millions. He had to write a check for $2.9 million. Why? He had 100/100/300 and 1 MM of umbrella liability insurance. They took that 1.1 million from insurance and went after him for 2.9 more.
His point was he should have had at minimum 3 MM umbrella and 5 MM was the correct value for him.
His other point was in modern times, 1 MM is peanuts in an accident. Just about any accident gets into the 1 MM range for damages.
Now -- if you are worth 100k -- this doesn't matter. The auto insurance would have been all the other side got -- because their lawyer would have stopped them from going after someone with no money to pay. Same if you were worth 1 MM total. Still covered.
Case #2. Another neighbor of mine. Daughter hit someone and killed them. Criminally charged. 19 years old.
He had no umbrella policy. He was worth several million dollars. He just settled for about 1 million and he had to write a check for 900k. He's 55 years old. He's wiped out now. Has no idea how he will retire. Just lost his job recently too.
Last night he was all over me to get my umbrella policy set to 5 MM. It's about 2k per year for that level -- but if you have something to lose, you need it. That level covers you for 99.x% of whatever can happen. Basically 3 MM is the new 1 MM. 250/250/500 is the new 100/100/300. Like 40 is the new 30.
for damages.
This is not even close to true.
You can make the point about appropriately protecting your assets without absurd hyperbole.
If that were true no one could afford auto insurance. As someone who has been in the business several decades and managed an auto claim dept of over 100 adjusters I can attest to the fact that 1 mill in damages is very rare. 90% are probably under 20k. Not to say that an Umbrella policy is not wise.
umbrella policy (1MM).
My question, as I asked the poster below, is whether or not IRA/401(K) assets are reachable via litigation.
Generally some portion is unreachable by creditors, but how much is protected varies by state
which is certainly worth the few hundred a year it costs. We live in a litigious society.
as you point out the cost is pretty reasonable, especially for the added coverage.
As part of being eligible for the umbrella - which tends to be much cheaper than auto. Keeps you from under insuring on auto and leaning on the umbrella to make up that difference.
Which varies by state. My states max out at 250/250/500. The umbrella then adds on top of that level -- if an auto accident is the trigger for the event, and pays the entire amount if it is a different type of event that's covered.
As I noted above -- if you have a net worth over 1 MM (house equity, savings, earning potential also factored in) then you really need to step up to 3 MM which is in the 1k per year range (+/- depending on what all you own, your profile, etc).
As I pointed about in my post above -- 1 MM isn't a lot anymore for damages. Many accidents with property damage are going to rapidly get over 1 MM.
"Many accidents with property damage are going to rapidly get over 1 MM."
Lot of McLaren vs McLaren head-on collisions where you live?
Property damage is hardly ever the primary expense in an accident. The cost of the car is going to be $30-40,000 for almost every car on the road. It's the cost of medical that's the driver (pun intended).
The potential downside is creating more room for debate over the value of the claim by providing more collectible assets.
If you live in a debtor-friendly state, umbrellas can invite litigation instead of protect against it.
but if you've got assets auto generally isn't close to enough to deal with the ambulance chasers for whom every accident derails the career of the next Bill Gates.
sue. If you have a net worth over 250k you absolutely need an umbrella policy. As I described in my top post -- one event can ruin your entire life if you don't have one. $250 per year covers that use case.
If you have over 1 MM of assets combined with ability to pay -- you need 3 MM to 5 MM policy. Don't forget ability to pay. If you are working and making 100k per year and are young-ish (below 40) they will factor that in and will sue for more than you have, get a judgment and then put a lien on your future earnings. Ultimately driving you into a settlement above what your assets are but below what a 20-30 year payment plan would have been.
I know this first hand from people that have been sued for what their kids have done -- car accidents of adult aged kids.
a negligent entrustment theory of liability, but as a rule, no, you're not liable for your kid's tort.
In Texas, for example, your entire homestead, one car for each licensed driver in the household, $30K in personal property, retirement accounts, 529 accounts, most insurance, annuities, pensions, and a smorgasborg of farm animals. And your wages can't be garnished.
There's plenty of people in Texas with million dollar homes who would be pretty difficult to collect on.
That being said, the downside of being kept in a suit where your insurance company is defending you is low compared to the downside of having your assets taken from you. If you're unsure, the extra couple hundred bucks a year for an umbrella policy is probably not a bad decision.
I just don't think there is any firm rule to go by for this stuff, and reject the idea that anyone can say what sort of product is a "must" without getting that fuller picture.