Ask the grumpies: Umbrella Insurance

SP asks:

 What is your opinion on umbrella insurance.  I saw in one comment (I did search your blog) that at least one of you has it.  My current quote [in CA] is $184/yr for $1M of coverage (deductible not clear right now).

Umbrella insurance is something you get if you have substantial assets someone could potentially take from you if they pursued a frivolous lawsuit against you (or even a not so frivolous lawsuit!  but we assume our readers will only be pursued by frivolous suits).  It also fills in some of the gaps from your other insurances, but in our opinion the lawsuit thing is the big thing.  $184/year for $1M seems reasonable.

The insurance is nice because you won’t go broke if you lose one of these suits and because the insurance company has skin in the game, they will often go to bat for you and help you out with the lawsuit itself (so I’ve heard, anyway).

If you are the type who thinks that a potential lawsuit may not be a random act of chance, then be sure to read the fine print on your policy.  Many things that could be your fault are excluded from the insurance plan, and if one of those is your particular vice, the umbrella policy isn’t going to help you if you get sued.  You also may be excluded if you run a home daycare, and I’m sure there are other exclusions for other higher risk (of lawsuit) occupations.

We got ours at the point that we had “real” assets that we were willing to pay something under $200/year to insure that we didn’t lose them.  We also thought at that point our assets might be attractive enough for someone to bother going through a lawsuit to get them if given the opportunity.  We bought umbrella about 3 years after getting real jobs, but I don’t know what our net worth was at the time, just that it was high enough that $200/year seemed worth it to our loss averse selves.

So that’s our thoughts on umbrella insurance.   Grumpy readers, what are your thoughts on umbrella insurance?  Do you have it (and why or why not)?  When did you get it?


16 Responses to “Ask the grumpies: Umbrella Insurance”

  1. omdg Says:

    $200 seems like a small price to pay to protect yourself against frivolous lawsuits, but I live in an area where there are large income disparities and they happen all of the time. Heck, my neighbors have told me about pursuing frivolous lawsuits in order to make an easy $5000. I even had a classmate tell me about one that she personally pursued. They happen. Better to have insurance vs. lose everything. If you have a dog, injuries to other people from the dog might not be covered, or you may need an additional rider.

  2. Sandyl FirstgenAmerican Says:

    Having a small business, even a tiny one, like dog walking or a blog is another reason to get umbrella insurance. My insurance is $150/year for $1MM and it seems well worth the price. Plus, there are lots of other things that can happen, people getting hurt on your property, etc.

    • nicoleandmaggie Says:

      Be careful though to make sure your small business isn’t excluded from the coverage– some are (particularly home daycares).

      • Sandyl FirstgenAmerican Says:

        Good Point. I know you need a special rider on your insurance for daycare, but that’s usually added to your normal home insurance policy not the umbrella. I also had to increase my personal liability on my home policy to $500K before I could qualify to get the additional $1MM umbrella.

  3. Leigh Says:

    I have umbrella insurance. I got it when I only had around $100k in assets and around $110k in annual income IIRC. My dad convinced me to get it on the basis that someone could sue me for future earnings. Right now I pay $158/year for $2 million in umbrella coverage, on top of my auto and home insurance, all with the same company. Sometimes I debate it, but as my assets grow, I think it’s quite helpful and probably won’t get rid of it. I’ll probably re-evaluate if I have the right amount of umbrella coverage when I have over $1M in assets, but for now this is fine.

  4. The frugal ecologist Says:

    We don’t have umbrella insurance but sounds like we should. I was sorta waiting til our assets were “significant” but $200 seems a small price to pay.

    Do you know of any good calculator or rule of thumb about how much to purchase? Net worth? 2x net worth?

  5. Linda Says:

    I’d be interested in hearing which insurance companies people with umbrella insurance are using, if that’s allowed.

    I currently have umbrella insurance. I added it about three years ago at the advice of my financial adviser. I just added it through my home and auto insurance provider (State Farm) because usually it is cheaper to “bundle” insurance. I was told I had to adjust my auto insurance, too, for the $1M umbrella to be added (I can’t recall what I had to adjust, though. I think it was the part of auto insurance that covers medical bills for others). It’s costing me about $200 a year.

    I asked the financial adviser if I should maintain the umbrella insurance after I sell my house. He hesitated and suggested I ask the insurance company. I’m not sure an insurance company will tell me to *drop* a policy, though.

    It’s something I need to figure out. I will no longer have a big asset (my house), but I will then have a chunk of cash from the sale that should be protected. My assets are hardly $1M, though, I hadn’t thought about umbrella insurance protecting one’s future earnings which may explain why it is so high.

    I’ll probably keep the insurance for now and revisit the decision next year once I’m settled in my new rental. If anyone has information to share that will help me with this decision, I’d love to hear it. At least I’ll be saving money with renter’s insurance vs. homeowner’s insurance!

    • Sandyl FirstgenAmerican Says:

      I use Electric Insurance, mainly because they were owned by GE and I used to work there. I got a multi policy discount and an employee discount so no one could ever come close to matching their rates for me. However, it’s near impossible to get approved on new policy’s. It took a lot of work to get my two older homes added to my policies despite being a long time customer and never having a home claim.

      Usually, whoever you have your car/home insurance with will usually also carry umbrella policies as well.

    • nicoleandmaggie Says:

      We have all our insurance under Liberty Mutual.

  6. bogart Says:

    We have a $1M umbrella that costs us $162/year. We do also have to carry more than the state-required minimums (minima) on our car insurance policies to be able to get the umbrella, but those are pretty low (arguably “too low”) anyway. Our coverage is with Farm Bureau; we recently left State Farm after shopping around and finding FB was cheaper overall for us. The SF umbrella was less, though, $137 — it’s the overall coverage cost that’s gone down (cars and home) with FB.

    I’m pretty sure we took out umbrella coverage ~1.5 decades ago when we had teenage drivers in the family. They’re now grown and gone, of course, but while that may have been the motivator, it’s really not that hard to imagine a scenario in which one of us causes (heaven forbid) enough injury to an uninsured person or people in a car accident that our coverage would be inadequate simply to cover damage done (this was still easier to imagine pre-ACA, of course, but my state is one of the ones that has not expanded Medicaid, boo). So, long story short even independent of fear of lawsuits, it seems an affordable way to reduce the risk that we would do someone wrong.

    I’m 99.9% certain ours covers NOTHING related to commercial activity we’d be involved in (I mean, we’re not, but if we did have e.g. a dog-walking business or ran a lemonade stand or whatever).

  7. Scooze Says:

    Hmmmmm maybe it’s something I’ll start thinking about again. I got umbrella insurance back when I owned a car and had just bought my condo. I ended up dropping it when I realized my net worth was way too little for anyone to sue me. Now that I’m older and richer (comparatively speaking) maybe I should start thinking about it again. I used USAA the first time and will use them again. I have all insurance through them.

  8. chacha1 Says:

    We don’t have an umbrella policy.
    The husband carries professional liability insurance, and there is a small liability premium wrapped into our renter’s insurance. Other than that … nope.

  9. Debbie M Says:

    I’m preventing sewage (by which I mean “being sued”–that’s probably not the right word, but I think it should be) by being poor–oops, by looking poor. Yeah, that’s probably not the best plan. About 50% of my net worth is in my house, 25% in my pension and 25% in my Roth IRA. I think all that’s protected from bankruptcy in my state, but I guess I know nothing about lawsuits.

    I do have pretty high limits on my auto and home owner’s insurance, though.

  10. plantingourpennies Says:

    We’ve gone back and forth on umbrella coverage, but one of the things is that it would exclude areas that we feel are our most vulnerable – like the small dock on our empty lot. That’s uninsured, and an umbrella policy wouldn’t cover anything to do with it because it’s uninsured… but at the same time, no one will sell a policy with a reasonable price to cover the liability on it. We would also likely need gap coverage to cover the limits on our policies on our rental units and the minimum starting point where the umbrella would kick in… but again those start to get prohibitively expensive for what they are worth.

  11. Comradde PhysioProffe Says:

    It seems like a poor cost-benefit ratio to purchase insurance on your umbrella. If the wind breaks it, you can just buy a new one for like ten bucks.

    I’ll be here all week!

  12. Readings | Funny About Money Says:

    […] minds want to know: Do you carry umbrella insurance? Check in at Grumpy Rumblings to add your two bits and see what others […]

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