Does one need to have an umbrella policy for > 2 mil.

[Slav4ikMD]

I currently have an umbrella policy for 1 mil which I got right after residency.  At this point I am fairly convinced that I need to increase it to 2 mil as a mil these days just ain't what it used to be and legal fees alone can add up quickly.  But here is my question:  how do I decide if I need more than 2 mil?

I have looked at these already:

https://www.whitecoatinvestor.com/umbrella-insurance/

https://www.whitecoatinvestor.com/forums/topic/how-to-calculate-how-much-umbrella-i-need/

I don't think one's assets or net worth matter so much here.  What I am curious about is whether there is any actual DATA about judgments that exceed 2 mil?  Realistically when might that happen? (obviously outside of a medical liability lawsuit which is irrelevant for umbrella anyway).  I am thinking a bad car accident with a van full of kids type scenario... What else?

Thanks!

 

[The White Coat Investor]

I don't know of any. The point isn't necessarily to have a certain amount, but rather enough that the insurance company has enough on the line that they'll send their best legal team to defend you.

[Slav4ikMD]

Thanks WCI.  I know you've said earlier that you yourself have 2mil.  How did you decide to cap it at 2 and no go for more, say 5?  I am fine with either, just feels like a somewhat arbitrary decision to me.  Essentially have you ever heard of having 2 mil and it somehow not being enough?  Or is that just basically theoretical?

[The White Coat Investor]

It is arbitrary. I figure $2 Million will cover an awful lot of risks and pay for an awfully good legal defense. What kind of risks do you see in the $2-5M range?

[Slav4ikMD]

"What kind of risks do you see in the $2-5M range?"  Well, I don't, hence the post.  But if those policies exist and some people buy them, there must be some reason.  Technically I also don't know what I see in the 1-2 mil range, so do I really need to up my policy?  I realize it is arbitrary.  But it doesn't hurt to give it some thought.

But realistic worries:  a bad car accident with a lot of people hurt and partially one's fault, a kid drowning in our pool, kids playing and someone falls down the stairs, someone trips over a suitcase in the airport and miraculously breaks their neck becoming disabled and not being to support their 6 kids....  Who the heck knows.

[The White Coat Investor]

I think it's one of those things where if you'd sleep better with $5M than $2M, then get the five. It's still pretty cheap. I think I looked at it as - geez $1M costs me $16+K for malpractice and I get can TWO MILLION for a couple hundred bucks? I'll take it! Maybe I'll go to 5 eventually, but there's a reason this stuff is cheap- it just doesn't get used that often.

[The White Coat Investor]

Found this: http://www.galleninsurance.com/wp-content/uploads/2011/08/10-Actual-Claims-On-a-Personal-Umbrella-Policy.pdf

There were 2 awards and one claim higher than $5M, but none between $2-5M, for whatever that's worth. Not sure whether they were reduced on appeal like most above the limit malpractice cases are.

[Slav4ikMD]

Thanks.  Good examples.  Some just totally whacky, others very realistic.  For some reason I most worry about kids:  playing, someone pushes someone onto something... those brains can be pretty gentle as you know.

Anyway, I think I have my question answered:  we just don't know and 2 mil is likely good enough.  Thanks!!  Solved on WCI forum.

[The White Coat Investor]

Some more info:

http://www.renderinguntocaesar.com/Resources/Umbrella%20Coverages.pdf

>80% of umbrella losses are auto-related

Median for auto is $21K, but average is $306K.

Some more: https://www.mccartin.com/3-insurance-questions/

Lawsuits are another uncertainty that businesses and homeowners face. They’re costly: In the 56-year period from 1950-2006, the costs of the tort lawsuit system in the U.S. increased an average of 9.2% each year, reported Tillinghast-Towers Perrin. While most lawsuits are settled before they reach the courtroom, Jury Verdict Research data show that the median plaintiff award in personal injury cases was $45,000 in 2005, compared with $32,000 in 2002. Insurance provides two benefits to those who are sued: It pays for the cost of defending the lawsuit and pays for any liability payments for which the insured is found responsible.

That seems to suggest a 7 figure amount is plenty. But if you sleep better with $5M than $2M, it's pretty cheap Ambien.

[Craigy]

There are quantum books published for various states annually, you could probably get an old copy for not too much money.  They essentially show how much somebody is worth in the event of injury or death, briefly what may have motivated the judge or jury.  Might give you a ballpark idea.

Like the ed said, people aren't cashing in on these umbrella policies a lot.  I'm no actuary, but I'd guess people who buy umbrella policies tend to be pretty responsible people and stay out of that sort of trouble.

[artemis]

I have a 5 million dollar umbrella policy, but I'm happy to admit it's overkill.  Since my assets are now in the 2 million dollar range, though, having that additional coverage does help me sleep better at night.  Realistically, though, it's probably not offering me a lot of additional protection; I'm just the worrywart sort.

[childay]

I think it's a good question, maybe worthy of a blog (guest?) post

[The White Coat Investor]

childay wrote:

I think it’s a good question, maybe worthy of a blog (guest?) post

Click to expand...

Like this one?

https://www.whitecoatinvestor.com/umbrella-insurance/

Or did you want one written in the last six years?