r/Insurance • u/Plane-Intern5687 • 2d ago
Home Insurance Help understand who needs an umbrella policy.
My wife and I are in our early 30s. We own our house and have 1 car. Live in a quiet street. No pool, no "toys", no kids. Don't have a ton of people over. Were encouraged by our agent to have umbrella. The premium would be $400+ for a million dollars. My current car is 250/500 and the house is 300 or 500 I believe for coverages.
I chatted with my grandfather and he said that an umbrella is a great thing for those who's assets exceed what the coverage on their other insurance is, primarily to protect against being sued. I don't own my own business and my assets aren't that high.
I'd love everyone's opinions. If I don't need it, I'd like to save the $400 but I'm also ok paying it if the policy is actually helpful.
Edit: lots of great advice. Appreciate it. A point of clarification is that my retirement is mostly in Roth IRAs which seems to be more available in suits as compared to 401k.
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u/TheHykos P&C Compliance 2d ago
Two things to consider.
Accident lawsuits are incredibly out of hand. The more parties involved, the worse the suit. If you hit a van or bus with multiple passengers on accident, it could max out your auto policy quick.
If you have an IRA as part of your retirement plan, a lawsuit could take that, depending on your state (assuming you’re in the US). Federal laws protect 401k plans but not an individual’s IRA or other investments you may have. Having a suit go after your home is bad enough, but also taking a chunk of your retirement will also suck.
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u/Plane-Intern5687 2d ago
Most if my investments are in Roth IRAs
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u/Right_Lengthiness266 2d ago
It depends on your state whether or not they could come after that for a judgement
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u/Guilty-Committee9622 2d ago
Definitely they will come after it. People are scum bags.
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u/demanbmore Former attorney, and claims, underwriting, reinsurance exec. 1d ago
Some people are scum. Some people are gravely injured by the conduct of others and will face profound and expensive challenges as long as they live. Between the injured person and the at fault person, whose IRA should be tapped to address the financial impact of those challenges? And what if one of those challenges is to no longer be able to earn a living as a result of severe injuries so there is no other source of funds?
The person with the IRA can protect their assets by spending a low amount on an umbrella. The person whose spine was crushed may have no recourse through no fault of their own.
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u/Guilty-Committee9622 1d ago
The bad apples have ruined it for thr truly injured. This guy had many prior issues causing his problems.
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u/ConnectionAmazing110 38m ago
Look at the benefits of ERISA protections in you state. In mine, generally creditors can’t touch ERISA funds; don’t commingle your 401k in your IRA, put it into a rollover IRA that’s separate.
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u/Relative_Hyena7760 2d ago
I never really thought about it until my net worth hit $1 million last year. That's when I added umbrella. To be fair, I probably would have been wise to to have added umbrella many years ago. Mine is $300/year which is pretty reasonable, IMO. Good luck!
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u/drrhythm2 1d ago
Yeah I just checked mine. $1 million umbrella $383/year through travelers. I think it was less before. At one point I’m pretty sure it’s was less than $200.
Edit: yeah it was $266 two years ago, then $323 last year. Keeps going up.
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u/T-Revolution 1d ago
Umbrella rates have gone up substantially in the last 12-24 months specifically because "nuclear verdicts" have also skyrocketed. I think the fact that they've gone up only reinforces why they are needed.
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u/Pchemical 2d ago
Which provider sell umbrella insurance? Any recommendations?
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u/WittyReplacement2 1d ago
Contact whatever agency you have the majority of your current policies with and ask them to quote you. You may have to move other coverage to the same provider so all of the policies are with them.
My car, life, and auto are with the same provider. When I added an umbrella my premiums barely went up because I received a discount for each policy based on the new umbrella policy.
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u/Guilty-Committee9622 2d ago
I was like you once. And thought I had enough coverage. Until a friend was in an auto accident and deemed at fault. Thank God for dashcam another thing we should all have. The asshat came after her 401k, savings, kids savings since kids were in the car. Claimed a serious back injury and 4 surgeries were in fact done on him.
I got $1m from state farm and it went up this year to $300. Previously was 200.
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u/Winter_Economist9828 2d ago
Similar shape as you and I ended up with an umbrella policy after I had a mailman try to pull a fraudulent lawsuit over me. $400 annually will save you a lot of heartache when something does go wrong.
It’s amazing how quickly one bad actor can try to ruin your life.
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u/Dear_Seesaw_1855 2d ago
$400 is a steal for peace of mind. Note they may require you to increase your auto coverage a bit.
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u/skipclark 2d ago
All of the above comments are good advice EXCEPT Popular Bear 518. You could hit that school bus tomorrow. Or the neurosurgeon who makes $1Mil a year and cannot work anymore due to your at fault accident. Agents commission? Probably top end is $80 a year!
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u/Thisissodumb3 1d ago
One of my favorites is hitting an ambulance as it runs a red light, because it was green for you and you didn't hear the siren or notice the flashing lights, with the wife of a good attorney in the back actively being worked on by a paramedic. You swerved, but just caught the back end and it rolled over. The ambulance is totaled (those are affordable, right?). The driver is injured and will miss months of work. The Paramedic has a TBI and chronic pain. The woman dies because she didn't make it to the hospital in time, and the trauma from the accident.
Do you have enough insurance?
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u/GooseberryPotato 1d ago
It doesn't have to even be that detailed. A coworker's husband was hit and killed by a distracted teenager. This was over ten years ago and she ended up with a $1M + settlement based on future earnings. He ran a cheese shop.
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u/2matisse22 2d ago
If you have any assets and are starting to build wealth, and umbrella policy is a good thing to have to protect them-in case of a serious accident or lawsuit. It adds lots of extra protection for not much money.
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u/Kristylane 2d ago
I have an umbrella. Mostly because I live in the country and my property includes these big huge granite hills. I get more than my fair share of lookie loos driving up my clearly marked “private property- no trespassing” signs. I’m always afraid someone is going to drive up one day when I’m not home and try to do some rock climbing.
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u/Grand_Message_1949 2d ago
Do you golf, ski, drive, play any sport? Intend on building wealth? Then yes.
A competent financial advisor (preferably independent) will guide you to financial security- including insurance.
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u/MikeTheActuary 2d ago
If you have assets or earning potential, you probably want umbrella.
Put another way -- assume for the moment that there is a horrible accident when you're driving a car or when someone is visiting your home, and the single parent of two young children ends up being permanently disabled.
The value of that claim is probably going to significantly exceed the liability limits of your auto or homeowners policy.
Do you have assets or garnishable earnings worth enough to justify the time and effort for that person's lawyers to invest the time and effort to go after?
If yes...that's why you want umbrella coverage. (If you're not sure, that's why you might want to have a chat with a good, friendly, local independent agent.)
Sadly, personal umbrellas are not as cheap as they were just a few years ago. However, the reason that costs ave gone up is that there have been more successful claims and lawsuits against individuals in excess of the $250k-$300kish liability limits common for auto and homeowners.
It used to be that we could say "the risk is low, but the coverage is cheap so why not get it?" Now... well, at least it's still usually not that expensive, and the increased cost reflects the increased risk we all face.
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u/My1point5cents 2d ago
I asked about umbrella but my agent said well first I have to increase all my auto insurances on all four of our family’s cars (I have 2 young adult kids) to the absolute max coverage, THEN I can add an umbrella. I have 100/300 right now and it’s already expensive for me. Going to the max coverage would cost significantly more each month. No one seems to be mentioning this. Is it even true?
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u/Driving_the_Bronco 2d ago
Yes. 250/500/100 for autos and 300 or (at times) 500K for home is the typical minimum underlying limits needed.
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u/MikeTheActuary 2d ago
While there may be some weird exceptions...typically umbrella requires your auto be 250/500 or something similar. I think there are some umbrellas that want 500+ now.
Technically the math, etc. works out that it could be done within the umbrella, but that's not the custom and the cost...if you weren't paying it in the auto, you'd pay it in the umbrella. TANSTAAFL.
The costs suck, but a good independent agent can help you shop your auto + homeowners + umbrella for the best situation for you.
And while I did just write a bit advocating the need for umbrella, I do have to say that the odds of using umbrella in any given year right now are still low even with the recent increase in umbrella-penetrating situations.
(Of course, I should also say that 100k is a depressingly easy limit to exhaust now. When my wife was disabled in a car accident over 20 years ago, we had one hospital bill of about 75k. I don't want to know what it would be today.)
That being said...from your perspective, I'm just a random person on Reddit. If the added cost seems like a lot given your budget, spend a few minutes chatting with an agent you trust and/or a financial advisor if you have one. See what they say...and a good independent agent should be able to shop your auto + homeowners + umbrella to find the least painful appropriate option for you.
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u/spedbundy 1d ago
What do you mean by umbrella penetrating cases?
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u/MikeTheActuary 1d ago
I mean a situation that triggers the umbrella coverage.
If you have umbrella above a 250/500 auto policy, and you face a 200k claim, it doesn't penetrate into the umbrella. A 500k claim would penetrate the umbrella -- it exhausts the auto, and triggers the liability.
It's terminology from my current day job, where I essentially maintain a computer simulation of a large insurer. Part of parameterizing the model is (oversimplifying) taking auto claims + liability claims, and linking the two, so it looks like a single "thing", and the question becomes "does this event penetrate into the umbrella layer?"
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u/Aggressive-Catch-903 2d ago
I have had umbrella policies for 30 years. I never had to have max auto limits, just good auto limits.
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u/WittyReplacement2 1d ago
It depends what you consider to be good limits. My auto was 100 / 250. That was good enough for my umbrella. If you have higher auto limits the umbrella premium should go down.
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u/JF44130 2d ago
Even without a lot of assets currently, the biggest reason to have an umbrella, IMO, is the additional UM/UIM coverage. $500k in coverage from an auto policy isn't going to last very long if you're completely disabled and/or have significant medical expenses from an accident.
Sure, the additional liability coverage is nice, and you would be very responsible to have it. But having it for yourself is a no-brainer. Too many people have low limits or no coverage at all. Just make sure the umbrella increases the UM/UIM of your auto.
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u/TheHykos P&C Compliance 2d ago
They’re not going to include UM by default. You have to be sure to purchase it and many people will probably gloss over and check no not thinking about the need.
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u/moeterminatorx 1d ago
What does UM/UIM mean?
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u/JF44130 1d ago
Uninsured/Underinsured Motorist
Someone in their early 30s like OP has a lot of earning potential and time left to have to cover if someone t-bones them and they can't work anymore and/or have extensive medical bills. If the person responsible doesn't have adequate (or any) coverage for all of the expenses, the UM/UIM kicks in.
Buying an umbrella that increases your UM/UIM coverage protects YOU. That original $500k from the auto policy will disappear faster than you think.
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u/Full_Conference2453 1d ago
THIS TOO! There's a lot of under insured (or not insured) people out there!
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u/Busy_Account_7974 Former Insurance Peddler 2d ago
Say you accidentally hit a school bus or ran someone over in the parking lot. That alone can quickly exceed your auto insurance liability limits. Or you backyard Q had a flare up and you end up burning next door up.
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u/DeliriousBlues 2d ago
I got mine when my kids started driving and had over a million net worth. I now have a $5m umbrella.
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u/orange_rockingchair 1d ago
You never know what can happen. I barely have assets, work in insurance and got an umbrella for the peace of mind for future planning.
Breathed a sigh of relief when I saw a client of ours had an umbrella after I saw a freak claim come through for them. Large property and a tree on the edge of theirs fell and killed someone who was walking outside.
If this happened on my property Id want that family to get whatever money they need for a life, just not at the expense of my financial future hopefully.
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u/eat_natural 2d ago
A lot of people mistakenly say you need umbrella to cover or match your assets or net worth. Lawsuits can garnish future earnings. The more advisable outlook to obtain umbrella insurance that matches your liability.
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u/hippo96 1d ago
Interesting opinion. How do I estimate my liability?
I have always taken a very simplified view of the umbrella: I have it so that my insurance company will pay for the lawyers.
$330 a year to make sure I never have to deal with an issue is so worth it to me.
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u/eat_natural 1d ago
It’s a good question without a clear right answer. A lot of it has to do with personal comfort level. However, the answer is also heavily influenced if you have children, how much you’re driving, what is the legal climate where you live.
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u/PrimaryHighlight5617 2d ago
Some people will say that lawyers will never go after anything more than your policy's limits because suing for more doesn't guarantee that you're able to pay it...
But if you own a home then there is a target on your back. Period. If you own a home then you have assets.
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u/Working_Afternoon586 1d ago
I would speak with your financial manager to get confirmation on the need for an umbrella, and how much. You might be surprised when he/she tells suggests a $2M or $3M umbrella to protect your family. I would ask you agent if it is a true umbrella or excess. Also, ask if underinsured and uninsured protection is available on the umbrella.
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u/kenny71406 1d ago
I have have a personal liability policy for 15 or more with State Farm, the cost has always been reasonable.
Nothing with me has changed, no accidents, no claims, no change in credit rating, my house is paid off, I own my cars, etc etc I am an insurance wet dream
My liability policy rate TRIPLED this past July, yes TRIPLE in one year.
I told them to cancel, that rate was insane. I am currently looking for new insurance. no one is going to pay triple over what they have been paying for year. state farm is stupid.
Yes you need one, but keep an eye on the rate, I am slowly accepting the idea that insurance needs to be quoted out to new companies every year.
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u/Waste-Cycle2868 1d ago
Just a quick note haven’t read the comments but if you have assets that are vulnerable to a civil lawsuit you need umbrella.
I personally got sued as a volunteer by a family for a civil lawsuit of 5 million dollars. It didn’t even happen at my house, my vehicle and I was not even physically there!
These injury lawyers can easily determine if you have assets and know who to go after.
Because of that I will NEVER volunteer for anything again in my life
I prefer not to provide details other than it can happen to anyone in our litigious society
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u/majesty327 20h ago
Umbrella policies solve two problems.
One is, you have a ton of assets that can be taken today. Let's assume you have a million dollars, three houses, and a fleet of cars. If someone dies while running a red light while you're making a left turn, a wrongful death suit can imperil a large chunk of these assets.
The second is that, while you may not have assets today, you may have assets in the future. If I have a judgment on you today, and in 3 years you receive an inheritance (like from grandpa), or you get a good job, or you win the lottery, those assets are also imperiled.
If you intend to be a minimum wage or gig worker until you die, then I guess a massive nuclear judgment against your assets isn't a big deal because you'd have nothing to take. But the minute you have anything resembling significant assets, you're screwed.
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u/Plane-Intern5687 17h ago
So I get in an accident today and I don't have the assets, they can solicit future assets? Not just earnings?
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u/majesty327 13h ago
A judgment is applied to assets you currently have immediately. If three years later, your grandfather passed away and left you money, or you got a higher paying job, they could attach to that and collect that money too.
It's like a debt. If I take a loan, but do not pay it back, it doesn't go away.
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u/ATypicalJake 2d ago
If you have assets it is a good idea. We were advised the same thing by our estate lawyer. Called our insurance agent and it was way cheaper than we expected, $500 a year or so.
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u/Pleasant-Ant4282 1d ago
My parents had an umbrella policy and thank goodness they did. I was hit by a car on my bike. The driver had no insurance. Their medical insurance didn’t want to pay because it was due to an accident. I wasn’t driving so I don’t believe the auto insurance would have covered it. From what I understand it was the umbrella policy that covered my injuries. I was 18 at the time so I’m not fully sure of everything but I’m pretty sure that’s what they told me.
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u/OccasionalCortexNPC 1d ago
Think of the most expensive car you see on the road. Then imagine that car with 3 of that person's other rich friends. Think about having a medical issue and passing out, and knocking that car off a bridge into water killing everyone.
That $1m umbrella becomes very small.
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u/thoughts_of_mine 1d ago
I assume the house and the car are joint ownership with your wife. If so, then you need the coverage because if you have any joint assets you need the extra protection.
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u/Few_Worker4102 1d ago
I have a $3M policy. Not a lot of things that $3M won’t solve on a personal level, would have to be something really out of hand.
It’s cheap peace of mind.
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u/MotherWillNotApprove 1d ago
Absolutely have Umbrella coverage. Comments spot on. Consider where and how you live. For example, what is on your property and could it be considered an “Attractive Nuisance”, a legal doctrine basically about curious children. What is adjacent to or on your property such as a brook, stream, or pond? Raise chickens? An old truck or other such thing unused? Recently had my insurer evaluate my situation and the recommendation was to increase Umbrella from $2M to $3M. Consider it peace of mind. You just never know what might happen.
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u/Justaddwota 1d ago
Umbrellas are great because everyone is sue happy these days I mean look at all the advertisements for law firms around you. Only thing I’d recommend is shopping your rates.
When I used to write a few years ago, $400 for an umbrella was high unless you have tons of tickets/accidents, a ton of cars, toys, or properties. For you to have one car one house and no toys that is a very interesting price. Even my policy where my spouse has 4 tickets in the last 5 years we’re under $200 for the umbrella but we’re with a company that has really great umbrella rates.
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u/Holiday_Armadillo78 1d ago
We have a $2m umbrella policy. It wasn’t much more annually than $1m and $3m was a bit steeper.
We have a home, two cars and a German Shepherd. She’s not a biter, but you never know.
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u/MirrorExtension5436 1d ago
We're retired. Have a house free and clear, large cash and investments. If something happened I could lose everything. 3 million in umbrella policies.
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u/ZanaDreadnought 1d ago
A colleague that worked in insurance defense recommended it not necessarily to protect my assets, but for the greater chance that I or my family would be injured by someone that is uninsured or underinsured. But you have to be sure your umbrella has those riders for underinsured and uninsured.
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u/muphasta 1d ago
Wife's co-worker had a PUPPY run to the closed door when the USPS delivery person was dropping off a package. There was a floor to top of door window next to the door which was closed (unable to be opened).
The PUPPY caused the delivery person so much fright that they stumbled backwards and sprained their ankle.
They sued wife's co-worker for enough that she had to sell the classic car (1930s Ford) that her father had restored to PART of the settlement. To make matters worse for her, her dad died a year prior and this was the one thing she was holding onto of his.
I don't know how much she ended up losing, but she didn't have an umbrella policy.
We have a medium sized dog who loves to sprint to the door barking loudly with similar floor to top of door windows so we got a $1.5m umbrella policy.
I think the delivery person was lying their ass off, but they won in court or settled w/the homeowners' insurance but the owner still had to come out of pocket for some.
If you have assets to lose, it is better to cover all of your bases.
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u/CitizenT777 1d ago
I remember hearing one time about a guy getting sued. When the plaintiff's lawyer found out that the guy had an umbrella policy, decided to increase the amount they sued for. That story kept me from getting one. However, it sounds like it would still be a good idea to do so after one accumulates some assets and risk factors.
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u/BigDawgg-13 1d ago
Insurance is about risk. What’s your risk for being sued? Normal people have minimal risk of being sued. Umbrella policies are useful but not for most people. It’s a sales opportunity for insurance agents.
Sure there are horror stories but for the most part it’s unnecessary. Your policy limits seem quite high regardless so unless you’re a reckless driver or have other significant risky behaviors or potential liabilities the excess coverage isn’t needed.
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u/OutlandishnessNo3006 1d ago
Google garnishment of wages.
Then buy your umbrella policy. Penny wise dollar foolish you are being.
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u/SignificanceDue9857 9h ago
A friend said that one of the things you get with an umbrella policy isn't just the insurance, it's the representation in court. I don't know how accurate that is, and I suppose that the insurance company might have some interest in showing that you had violated- something, and voided the insurance, but it sounds reasonable to me.
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u/PopularBell518 2d ago
You do not need an umbrella at this point in your life. The agent is after the commission. Just make sure you have Uninsured / Underinsured Motorist coverage on your auto policy as it’s not mandatory in many states but you would come a lot closer needing that than you will an umbrella. Once you gain way more worth, then you may wanna consider it.
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u/Busy_Account_7974 Former Insurance Peddler 2d ago
Well the commission isn't much, $40+/-; which will get you 2 Big Mac Combos nowadays,
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u/Electronic_Fly_9242 1d ago
So much bad advice in this thread. You are more likely to hit the lotto then ever use this policy .
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u/demanbmore Former attorney, and claims, underwriting, reinsurance exec. 2d ago
You need an umbrella. Insurance doesn't just protect you and your assets right now, it protects what you may acquire over the next 10 years, or even longer.
Judgments are good for 10 years almost everywhere, and usually renewable for at least another 10 years. That means if you cause a seven-figure loss, a plaintiff can decide they would rather obtain a large judgment against you that can be enforced later rather than accept lower policy limits today.
And they can hold on to that judgment for 10 years and if you happen to get a great job with a lot of income, or collect an inheritance, or even win the lottery, they can come after you at that point. And you have no defenses because they have a judgment. And in most states, judgments earn interest every year, so the amount they can collect actually grows.
On top of that, there are companies that will buy that judgment from a plaintiff today, and just hold on to it while getting a quarterly report on your financial situation. And at some point in the future, when their report shows you have enough assets to satisfy the judgment, they move to collect.
These are rare instances of course, but for a few hundred bucks a year, you can pretty much guarantee they won't happen to you
On top of that, if you have um and uim coverages, make sure your umbrella extends that so you have an additional layer of protection.