Do we need more umbrella coverage?

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Ron Ronnerson
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Location: Bay Area

Do we need more umbrella coverage?

Post by Ron Ronnerson »

We just got a notice in the mail saying that it’s time for us to renew our umbrella coverage. We currently have a $1M policy for which we're paying an annual premium of $224. I’m wondering if this amount is sufficient or whether we should increase the coverage amount.

My wife and I are 46 years old (teacher and stay-at-home parent) and we have one child, age 6. We live in a townhome in the Bay Area and own two Toyota Corollas. I drive about 10k miles per year and my wife typically puts less than half that on her car. We have housecleaners come in regularly as well. We don’t take part in any sort of high-risk activities.

Our gross income is $115k and net worth is approaching $1.6M with the following breakdown:
Taxable investment accounts: $45k
Traditional IRAs: $25k
Roth IRAs: $340k
Workplace Retirement Plans: $420k
Cash: $125k
Home Equity: $600k (home value is about $1.1M and mortgage balance is about $500k)
Cars: $20k (current value; no loans)

Is $1M enough coverage or should we be thinking of increasing it?

Thanks for any feedback.
HomeStretch
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Re: Do we need more umbrella coverage?

Post by HomeStretch »

It’s reasonable in my opinion to consider increasing your limit. Especially if you have higher home and/or auto risk. For example, pets, trampoline, zip line, pool, kids that drive (you don’t need to worry about that for a few years!), long commute by car or you drive for carpools/play dates.

I thought the posts in this thread about having auto uninsured/underinsured motorist excess coverage as part of an umbrella policy was noteworthy:
viewtopic.php?p=5982099#p5982099
MikeG62
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Location: New Jersey

Re: Do we need more umbrella coverage?

Post by MikeG62 »

The way I look at it is I want enough coverage such that the plaintiff is likely to be willing to accept the limits of my coverage in the event it came to that than to take a risk on a jury verdict. I also want the insurer to have enough money at risk that I am likely to get their “A” team representing me. For that reason, I carry a $5 million umbrella.

It doesn’t hurt to ask your carrier what they want for a $2 million and $3 million policy. You can also shop around.

While it is state law specific, it does seem most of your net worth is judgement proof (caution IANAL). So maybe that factors into the analysis for you?

I consider umbrella insurance to be one of the cheapest forms of insurance one can purchase. In my view, I’d buy enough such that I would not be wondering if I had enough.
Last edited by MikeG62 on Sun May 02, 2021 4:11 pm, edited 1 time in total.
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oldfort
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Re: Do we need more umbrella coverage?

Post by oldfort »

I'll be in the minority which says no. If a case goes to trial and reaches a verdict, the size of the verdict should have nothing to do with your net worth, ignoring punitive damages. In principle, there's nothing preventing a $2 million or $3 million or $15 million verdict against you. Not many school teachers are going to be buying a $15 million policy to cover the most they think might get sued for or a $5 million policy, which is the most a lot of the mass market carriers offer. You have to draw an arbitrary line in the sand somewhere. For all the theoretical worst cases which come up, most plaintiff's attorney want to avoid a trial, settle for the policy limits, and move on to the next case vs go through a long and expensive litigation process and then try to force the sale of a defendant's home to collect on a judgement.
bltn
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Re: Do we need more umbrella coverage?

Post by bltn »

oldfort wrote: Sun May 02, 2021 3:52 pm I'll be in the minority which says no. If a case goes to trial and reaches a verdict, the size of the verdict should have nothing to do with your net worth, ignoring punitive damages. In principle, there's nothing preventing a $2 million or $3 million or $15 million verdict against you. Not many school teachers are going to be buying a $15 million policy to cover the most they think might get sued for or a $5 million policy, which is the most a lot of the mass market carriers offer. You have to draw an arbitrary line in the sand somewhere. For all the theoretical worst cases which come up, most plaintiff's attorney want to avoid a trial, settle for the policy limits, and move on to the next case vs go through a long and expensive litigation process and then try to force the sale of a defendant's home to collect on a judgement.
I think I agree with this. Most lawyers will settle rather than go to trial. So I understand from a brother in law who is a long time civil trial attorney.
To add a bit of piece of mind, an additional million dollars for a total of 2 million in coverage would only cost 2-3 hundred dollars annually.
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goingup
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Re: Do we need more umbrella coverage?

Post by goingup »

I’ll be in the minority, too, by saying you don’t need an umbrella. Salary and assets are modest by Bay Area standards. Most of your wealth is in home equity and retirement accounts. There is no target on your back.

Keep up good auto coverage. Skip the umbrella. The $200-400 per year could be used better elsewhere. People who say it’s cheap peace of mind aren’t supporting 3 people on your salary in the Bay Area.

Here’s an article from Jonathan Clement’s HumbleDollar blog that discusses umbrellas. It doesn’t especially support my point of view. :D https://humbledollar.com/2021/05/grab-an-umbrella/
Topic Author
Ron Ronnerson
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Location: Bay Area

Re: Do we need more umbrella coverage?

Post by Ron Ronnerson »

Well the early votes are in and they're sort of all over the map. We have two votes for looking into more coverage, two votes for not doing so, and one vote for dropping umbrella coverage all together.

I welcome more feedback as now I'm really not sure what's best.
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RickBoglehead
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Re: Do we need more umbrella coverage?

Post by RickBoglehead »

Ron Ronnerson wrote: Sun May 02, 2021 5:53 pm Well the early votes are in and they're sort of all over the map. We have two votes for looking into more coverage, two votes for not doing so, and one vote for dropping umbrella coverage all together.

I welcome more feedback as now I'm really not sure what's best.

The results show you the value of asking strangers on the internet how to assess risk, with zero expertise.

My rule of thumb is close to my networth. I'd go to $2 million.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Freefun
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Re: Do we need more umbrella coverage?

Post by Freefun »

If it were me I would double it. I've taken a similar approach but my rationale may be different from others...

1. I don't plan on working again so I want to protect my assets.
2. I tend to err on the conservative side.
3. Folks can sue for whatever they want.
Remember when you wanted what you currently have?
Silverado
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Re: Do we need more umbrella coverage?

Post by Silverado »

Yeah, as someone noted, get some quotes for $2 million, just so you know. It may be only a couple cups of a month more expensive.

Also, while you have them on the phone, sign up for electronic document delivery... :happy
oldfort
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Re: Do we need more umbrella coverage?

Post by oldfort »

Ron Ronnerson wrote: Sun May 02, 2021 5:53 pm I welcome more feedback as now I'm really not sure what's best.
This forum skews to posters wealthier than you. Most, but not all, frequent boglehead posters are going to have a gross household income greater than $115k, a net worth greater than yours, or both.
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Watty
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Re: Do we need more umbrella coverage?

Post by Watty »

Ron Ronnerson wrote: Sun May 02, 2021 3:17 pm Is $1M enough coverage or should we be thinking of increasing it?
(Snarky response: It is too late, you are already thinking of increasing it. :mrgreen: )

That aside you are asking the wrong question.

You should get a quote for $2 million(or whatever) and then ask.

"Is it worth paying $X to increase my coverage?"
Topic Author
Ron Ronnerson
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Re: Do we need more umbrella coverage?

Post by Ron Ronnerson »

Thanks for the responses. I'll find out the cost of increasing coverage and take it from there. I had just assumed that it wouldn't cost all that much more for an extra $500k or $1M (and agree it is worth finding out) but wasn't sure whether I actually even needed more coverage or am fine with the amount that I have now.
oldfort wrote: Sun May 02, 2021 6:15 pm
Ron Ronnerson wrote: Sun May 02, 2021 5:53 pm I welcome more feedback as now I'm really not sure what's best.
This forum skews to posters wealthier than you. Most, but not all, frequent boglehead posters are going to have a gross household income greater than $115k, a net worth greater than yours, or both.
I understand that everyone's circumstances, income, and level of wealth are different. I was hoping people might be able to provide advice based on what they would do if they were in my shoes.
SnowBog
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Re: Do we need more umbrella coverage?

Post by SnowBog »

RickBoglehead wrote: Sun May 02, 2021 6:02 pm
Ron Ronnerson wrote: Sun May 02, 2021 5:53 pm Well the early votes are in and they're sort of all over the map. We have two votes for looking into more coverage, two votes for not doing so, and one vote for dropping umbrella coverage all together.

I welcome more feedback as now I'm really not sure what's best.

The results show you the value of asking strangers on the internet how to assess risk, with zero expertise.

My rule of thumb is close to my networth. I'd go to $2 million.
Aren't ERISA accounts like 401k's protected (and I think some states extend protections to IRA's as well), and thus could be excluded?

Or is your "rule of thumb" also addressing that a lawsuit could impact "future earnings", which is maybe a wash with the protected 401k balance?

OP - assuming you have $420k protected, that still leaves $1.2M exposed + future earnings... So my vote is adding more. While its something I hope you'll never have to use - better to be protected...

And "thank you" for the post. I had purchased a umbrella insurance a few years ago - protecting all of my non-ERISA (aka non-401k like) accounts. With the gains the past few years, your post was a reminder that I needed to check my balance. And I'll be adding at least another $1M tomorrow myself... If it helps, I currently have a $2M policy - and looking online it would be about $90/year ($7.50/month) more add another $1M (and was about the same extra for the next $M).
oldfort
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Re: Do we need more umbrella coverage?

Post by oldfort »

SnowBog wrote: Sun May 02, 2021 6:42 pm
RickBoglehead wrote: Sun May 02, 2021 6:02 pm
Ron Ronnerson wrote: Sun May 02, 2021 5:53 pm Well the early votes are in and they're sort of all over the map. We have two votes for looking into more coverage, two votes for not doing so, and one vote for dropping umbrella coverage all together.

I welcome more feedback as now I'm really not sure what's best.

The results show you the value of asking strangers on the internet how to assess risk, with zero expertise.

My rule of thumb is close to my networth. I'd go to $2 million.
Aren't ERISA accounts like 401k's protected (and I think some states extend protections to IRA's as well), and thus could be excluded?

Or is your "rule of thumb" also addressing that a lawsuit could impact "future earnings", which is maybe a wash with the protected 401k balance?

OP - assuming you have $420k protected, that still leaves $1.2M exposed + future earnings... So my vote is adding more. While its something I hope you'll never have to use - better to be protected...

And "thank you" for the post. I had purchased a umbrella insurance a few years ago - protecting all of my non-ERISA (aka non-401k like) accounts. With the gains the past few years, your post was a reminder that I needed to check my balance. And I'll be adding at least another $1M tomorrow myself... If it helps, I currently have a $2M policy - and looking online it would be about $90/year ($7.50/month) more add another $1M (and was about the same extra for the next $M).
All his retirement accounts would likely be protected in bankruptcy as well as at least $300k in home equity. Assets which are are exposed in bankruptcy likely total under $500k.
SnowBog
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Re: Do we need more umbrella coverage?

Post by SnowBog »

oldfort wrote: Sun May 02, 2021 7:06 pm
SnowBog wrote: Sun May 02, 2021 6:42 pm
RickBoglehead wrote: Sun May 02, 2021 6:02 pm
Ron Ronnerson wrote: Sun May 02, 2021 5:53 pm Well the early votes are in and they're sort of all over the map. We have two votes for looking into more coverage, two votes for not doing so, and one vote for dropping umbrella coverage all together.

I welcome more feedback as now I'm really not sure what's best.

The results show you the value of asking strangers on the internet how to assess risk, with zero expertise.

My rule of thumb is close to my networth. I'd go to $2 million.
Aren't ERISA accounts like 401k's protected (and I think some states extend protections to IRA's as well), and thus could be excluded?

Or is your "rule of thumb" also addressing that a lawsuit could impact "future earnings", which is maybe a wash with the protected 401k balance?

OP - assuming you have $420k protected, that still leaves $1.2M exposed + future earnings... So my vote is adding more. While its something I hope you'll never have to use - better to be protected...

And "thank you" for the post. I had purchased a umbrella insurance a few years ago - protecting all of my non-ERISA (aka non-401k like) accounts. With the gains the past few years, your post was a reminder that I needed to check my balance. And I'll be adding at least another $1M tomorrow myself... If it helps, I currently have a $2M policy - and looking online it would be about $90/year ($7.50/month) more add another $1M (and was about the same extra for the next $M).
All his retirement accounts would likely be protected in bankruptcy as well as at least $300k in home equity. Assets which are are exposed in bankruptcy likely total under $500k.
I didn't realize there were protections on the home as well - but that makes sense...

But I'm not sure I understand your $500k estimate...

I'm working backwards from their $1.6M net worth, if we remove $420k from employer account and $300k from house, that's leaves $900k exposed (but below the current umbrella limits).

That's basically where I am - still "under" - but getting close... And since I think "future wages" are also exposed - probably time to add more... (Or at least that's what I'm doing I just did...)
Topic Author
Ron Ronnerson
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Location: Bay Area

Re: Do we need more umbrella coverage?

Post by Ron Ronnerson »

SnowBog wrote: Sun May 02, 2021 6:42 pm
RickBoglehead wrote: Sun May 02, 2021 6:02 pm
Ron Ronnerson wrote: Sun May 02, 2021 5:53 pm Well the early votes are in and they're sort of all over the map. We have two votes for looking into more coverage, two votes for not doing so, and one vote for dropping umbrella coverage all together.

I welcome more feedback as now I'm really not sure what's best.

The results show you the value of asking strangers on the internet how to assess risk, with zero expertise.

My rule of thumb is close to my networth. I'd go to $2 million.
Aren't ERISA accounts like 401k's protected (and I think some states extend protections to IRA's as well), and thus could be excluded?

Or is your "rule of thumb" also addressing that a lawsuit could impact "future earnings", which is maybe a wash with the protected 401k balance?

OP - assuming you have $420k protected, that still leaves $1.2M exposed + future earnings... So my vote is adding more. While its something I hope you'll never have to use - better to be protected...

And "thank you" for the post. I had purchased a umbrella insurance a few years ago - protecting all of my non-ERISA (aka non-401k like) accounts. With the gains the past few years, your post was a reminder that I needed to check my balance. And I'll be adding at least another $1M tomorrow myself... If it helps, I currently have a $2M policy - and looking online it would be about $90/year ($7.50/month) more add another $1M (and was about the same extra for the next $M).
Thanks, this is helpful. I believe workplace retirement accounts are protected but IRAs have less protection in California. I'm not sure what the law currently says about how much home equity is protected. If future earnings need to be factored in as well, then I suppose it's a good idea to get more coverage. It sounds like adding an extra $1M to the coverage likely won't affect the premium all that much. I'll call my agent this upcoming week and get a quote. Thanks again.
oldfort
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Re: Do we need more umbrella coverage?

Post by oldfort »

SnowBog wrote: Sun May 02, 2021 7:20 pm
oldfort wrote: Sun May 02, 2021 7:06 pm
SnowBog wrote: Sun May 02, 2021 6:42 pm
RickBoglehead wrote: Sun May 02, 2021 6:02 pm
Ron Ronnerson wrote: Sun May 02, 2021 5:53 pm Well the early votes are in and they're sort of all over the map. We have two votes for looking into more coverage, two votes for not doing so, and one vote for dropping umbrella coverage all together.

I welcome more feedback as now I'm really not sure what's best.

The results show you the value of asking strangers on the internet how to assess risk, with zero expertise.

My rule of thumb is close to my networth. I'd go to $2 million.
Aren't ERISA accounts like 401k's protected (and I think some states extend protections to IRA's as well), and thus could be excluded?

Or is your "rule of thumb" also addressing that a lawsuit could impact "future earnings", which is maybe a wash with the protected 401k balance?

OP - assuming you have $420k protected, that still leaves $1.2M exposed + future earnings... So my vote is adding more. While its something I hope you'll never have to use - better to be protected...

And "thank you" for the post. I had purchased a umbrella insurance a few years ago - protecting all of my non-ERISA (aka non-401k like) accounts. With the gains the past few years, your post was a reminder that I needed to check my balance. And I'll be adding at least another $1M tomorrow myself... If it helps, I currently have a $2M policy - and looking online it would be about $90/year ($7.50/month) more add another $1M (and was about the same extra for the next $M).
All his retirement accounts would likely be protected in bankruptcy as well as at least $300k in home equity. Assets which are are exposed in bankruptcy likely total under $500k.
I didn't realize there were protections on the home as well - but that makes sense...

But I'm not sure I understand your $500k estimate...

I'm working backwards from their $1.6M net worth, if we remove $420k from employer account and $300k from house, that's leaves $900k exposed (but below the current umbrella limits).

That's basically where I am - still "under" - but getting close... And since I think "future wages" are also exposed - probably time to add more... (Or at least that's what I'm doing I just did...)
Taxable investment accounts(not exempt): $45k
Traditional IRA(exempt)s: $25k
Roth IRAs(exempt): $340k
Workplace Retirement Plans(probably exempt): $420k
Cash(non-exempt): $125k
Home Equity(at least 300k exempt): $600k (home value is about $1.1M and mortgage balance is about $500k)
Cars(non-exempt): $20k (current value; no loans)

The whole point of bankruptcy is usually to prevent them from garnishing any future wages.
Non-exempt assets = $45k+$125k+$300k+$20k= $490k.
SnowBog
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Re: Do we need more umbrella coverage?

Post by SnowBog »

oldfort wrote: Sun May 02, 2021 7:36 pm Taxable investment accounts(not exempt): $45k
Traditional IRA(exempt)s: $25k
Roth IRAs(exempt): $340k

Workplace Retirement Plans(probably exempt): $420k
Cash(non-exempt): $125k
Home Equity(at least 300k exempt): $600k (home value is about $1.1M and mortgage balance is about $500k)
Cars(non-exempt): $20k (current value; no loans)

The whole point of bankruptcy is usually to prevent them from garnishing any future wages.
Non-exempt assets = $45k+$125k+$300k+$20k= $490k.
Doesn't IRA protection vary from state-to-state?

For some reason - my working theory is my IRA balances (just Roth) aren't protected in my state...

ETA: found this which seems to show more details by state: https://www.thetaxadviser.com/content/d ... achart.pdf

I believe the OP is in CA, which to my read means they basically aren't protected (Roth isn't, less clear on tIRA but my guess is its not unless they are retired and relying upon the funds).
oldfort
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Re: Do we need more umbrella coverage?

Post by oldfort »

SnowBog wrote: Sun May 02, 2021 7:44 pm
oldfort wrote: Sun May 02, 2021 7:36 pm Taxable investment accounts(not exempt): $45k
Traditional IRA(exempt)s: $25k
Roth IRAs(exempt): $340k

Workplace Retirement Plans(probably exempt): $420k
Cash(non-exempt): $125k
Home Equity(at least 300k exempt): $600k (home value is about $1.1M and mortgage balance is about $500k)
Cars(non-exempt): $20k (current value; no loans)

The whole point of bankruptcy is usually to prevent them from garnishing any future wages.
Non-exempt assets = $45k+$125k+$300k+$20k= $490k.
Doesn't IRA protection vary from state-to-state?

For some reason - my working theory is my IRA balances (just Roth) aren't protected in my state...

ETA: found this which seems to show more details by state: https://www.thetaxadviser.com/content/d ... achart.pdf

I believe the OP is in CA, which to my read means they basically aren't protected (Roth isn't, less clear on tIRA but my guess is its not unless they are retired and relying upon the funds).
You have to look at both federal and state protections.
https://www.socaladvocates.com/2877/can ... alifornia/
Last edited by oldfort on Sun May 02, 2021 8:02 pm, edited 1 time in total.
SnowBog
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Re: Do we need more umbrella coverage?

Post by SnowBog »

oldfort wrote: Sun May 02, 2021 7:51 pm
SnowBog wrote: Sun May 02, 2021 7:44 pm
oldfort wrote: Sun May 02, 2021 7:36 pm Taxable investment accounts(not exempt): $45k
Traditional IRA(exempt)s: $25k
Roth IRAs(exempt): $340k

Workplace Retirement Plans(probably exempt): $420k
Cash(non-exempt): $125k
Home Equity(at least 300k exempt): $600k (home value is about $1.1M and mortgage balance is about $500k)
Cars(non-exempt): $20k (current value; no loans)

The whole point of bankruptcy is usually to prevent them from garnishing any future wages.
Non-exempt assets = $45k+$125k+$300k+$20k= $490k.
Doesn't IRA protection vary from state-to-state?

For some reason - my working theory is my IRA balances (just Roth) aren't protected in my state...

ETA: found this which seems to show more details by state: https://www.thetaxadviser.com/content/d ... achart.pdf

I believe the OP is in CA, which to my read means they basically aren't protected (Roth isn't, less clear on tIRA but my guess is its not unless they are retired and relying upon the funds).
You have to look at both federal and state bankruptcy protections.
https://www.socaladvocates.com/2877/can ... alifornia/
So according to your link, the IRA balances should be protected in CA since they are below the cited threshold.
There is a limit to the exemption for traditional and Roth IRAs, but it’s at the relatively high amount of $1,171,650 per person (which is adjusted every 3 years).
I would have thought that limit would have been reflected in other places (like the link I shared), but I'm clearly not an expert in the law here, especially regarding CA laws...
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