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How to calculate how much umbrella I need?

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  • How to calculate how much umbrella I need?

    My umbrella policy is up next month. I am $1M now, but was thinking about doubling it. Difference in premium is small, like $170/year. What's the rule of thumb re how much umbrella one actually needs? TIA.

  • #2
    A good rule of thumb is to keep the amount of your umbrella policy equivalent to your assets.

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    • #3
      Makes sense. Thank you!

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      • #4
        How hard is it raining? Is there a strong wind? What is the likelihood of hail, and how large might that potential hail be? Do you have wide hips?

        :|

        LBKCLU's answer makes sense to me. If your assets exceed the umbrella, a portion of your assets is exposed. Time to get a bigger umbrella.

        Cheers,

        -PoF

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        • #5
          My $5 million policy costs me $805 a year.   I would get $5 million if you can get them to sell it to you.  One car accident can cost you that much.  You can have a judgement against you that exceeds your assets.

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          • #6




            My $5 million policy costs me $805 a year.   I would get $5 million if you can get them to sell it to you.  One car accident can cost you that much.  You can have a judgement against you that exceeds your assets.
            Click to expand...


            If you think you need an umbrella policy, I'd argue that  LBKCLU's statement should represent the minimum insurance you should buy.  As  AlexxT noted, umbrella insurance is cheap compared to almost all other forms of insurance, so why not add a little cushion in there just in case?

            That said, the answer to "how much umbrella insurance do I need" is likely dependent on why you think you need umbrella policy in the first place.  Some common reasons:

             

            1. You have a lot of assets and therefore would be a target of litigation if you are found negligent

            2. You want the peace of mind knowing that a deep pocketed insurance company will have a strong incentive to defend you in court if sued

            3. You want to have enough insurance so that if you are sued and lose, they will likely just settle for your insurance payout and not go for your personal assets

            4. You want to make sure that if you wipe out a minivan full of kids someday that you have enough insurance to cover the loss to that family

             

            Think about these types of things, figure out your motivations, and then figure out what makes sense for you.  I tend to "over insure" on things like car insurance, umbrella policies, life insurance, and disability insurance because these all represent areas of potential catastrophic loss to me and my family so I want to know, in the event any of these things happen, I took every step I could to minimize the burden on my family.  But that is just me.

             

             

             

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            • #7




              My $5 million policy costs me $805 a year.   I would get $5 million if you can get them to sell it to you.  One car accident can cost you that much.  You can have a judgement against you that exceeds your assets.


              If you think you need an umbrella policy, I'd argue that  LBKCLU's statement should represent the minimum insurance you should buy.  As  AlexxT noted, umbrella insurance is cheap compared to almost all other forms of insurance, so why not add a little cushion in there just in case?

              That said, the answer to "how much umbrella insurance do I need" is likely dependent on why you think you need umbrella policy in the first place.  Some common reasons:

              1. You have a lot of assets and therefore would be a target of litigation if you are found negligent

              2. You want the peace of mind knowing that a deep pocketed insurance company will have a strong incentive to defend you in court if sued

              3. You want to have enough insurance so that if you are sued and lose, they will likely just settle for your insurance payout and not go for your personal assets

              4. You want to make sure that if you wipe out a minivan full of kids someday that you have enough insurance to cover the loss to that family

              Think about these types of things, figure out your motivations, and then figure out what makes sense for you.  I tend to "over insure" on things like car insurance, umbrella policies, life insurance, and disability insurance because these all represent areas of potential catastrophic loss to me and my family so I want to know, in the event any of these things happen, I took every step I could to minimize the burden on my family.  But that is just me.

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              • #8
                Hijacking this thread - getting my ducks in order - one outstanding item is Umbrella Insurance.

                Now, I have a negative net work due to student loans - but do have retirement assets. Do I get enough to cover that amount? It's still not much. Nowhere near 1 Million. I don't own a home. Don't even own a car (yet). Do I still need it?? If so, maybe just 500K or even 1 million for now and increase later?

                Thanks.

                Comment


                • #9
                  And just to throw another wrench in the calculation: what if you live in a state that protects primary residence home equity (like TX)? Do you exclude that amount from what you consider your assets since that would not be liable to a judgement? Or am I interpreting that wrong?

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                  • #10
                    Just get it, $300-$500 is not much to spend to have the insurance company on the hook for the first $1 million of any issue (claim and legal fees).  Yes you may not have much now but that does not mean you won't at some point.  I have several million of coverage myself.  My brother, who is a very well respected defense attorney, has mentioned when they sit beside you at claim time it is amazing how fast $100k in legal fees alone will click by...a $400 per hour attorney will get you 250 hours of time which is not much over the 1-2 years it takes to go to trial with pre-trial work up, consults, experts, and research.  Just think how fast that goes if they also have a junior associate there (learning) at a cost of $185 as well.
                    Scott Nelson-Archer, CLU, ChFC
                    303-953-0263 Direct / [email protected]

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                    • #11
                      Also remember that the umbrella policy is also protection against your future earnings. If their is a judgment against you in excess of your liability limits, your wages can be garnished. Additionally, some umbrella policies will also provide you with legal defense and, as Scott mentioned, attorneys don't come cheap. An hour or two will make up for the annual premium that you spend.

                      http://www.forbes.com/forbes/2005/0606/146.html

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                      • #12
                        Get as much as you possibly can. Its ridiculously cheap there is no reason not to. I have 5 million and I think my premium is 560. No good reason not to get whatever you can.

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                        • #13




                          Hijacking this thread – getting my ducks in order – one outstanding item is Umbrella Insurance.

                          Now, I have a negative net work due to student loans – but do have retirement assets. Do I get enough to cover that amount? It’s still not much. Nowhere near 1 Million. I don’t own a home. Don’t even own a car (yet). Do I still need it?? If so, maybe just 500K or even 1 million for now and increase later?

                          Thanks.
                          Click to expand...






                          And just to throw another wrench in the calculation: what if you live in a state that protects primary residence home equity (like TX)? Do you exclude that amount from what you consider your assets since that would not be liable to a judgement? Or am I interpreting that wrong?
                          Click to expand...


                          Depending on the laws of your state, certain items like retirement accounts and home equity may or may not be exempt from seizure.  This varies state-to-state, and even in states where items are exempt, they may not be exempt in all circumstances, and you should consult an attorney in your area

                          In reality if you only have a limited amount of assets that are subject to seizure, you probably don't need much more coverage than that.  However, like Larry pointed out above, if you have a large income, or large potential for income, which is the case for most MDs, your earnings can be subject to garnishment as well.  Even many established MDs will find that their income is their greatest asset.

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                          • #14




                            A good rule of thumb is to keep the amount of your umbrella policy equivalent to your assets.
                            Click to expand...


                            I've heard this before, but I disagree. The reason why is that the judgement against you has absolutely no connection to your assets. If the judgement is $3M, and you have $1M in assets and $1M in umbrella, you're hosed. If the judgement is $2M and you have $100K in assets and $1M in umbrella, you're still hosed.

                            So I don't think you can actually calculate how much you need until you know what the judgement is, which is obviously impossible. But the point is the amount you need is far more related to what likely judgements are than how much you have. It's like the fact that your life insurance needs depend on what you spend, not what you make. But at least there is usually some relationship between what you make and what you spend. There is no relationship between what you have and a potential judgement.

                            That said, I think you need enough that most likely judgements will be covered and enough that the insurance company has plenty of incentive to mount a robust defense in your behalf. That's $1-5M in my book. If you're really worried, buy $5M. If you're a resident or not worried at all, buy $1M. Everyone else will be somewhere in between. I have $2M.

                            I'm not sure you need as much as they'll sell you, but I guess that really comes down to what they'll sell you. I don't think a doc needs to be chasing after more than $5M unless he is exposed to some really unusual risks.
                            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                            • #15
                              Interesting thread. Are premiums for umbrella insurance tax deductible if one is self-employed/1099? And does an umbrella policy only cover the individual who buys it (i.e. me) or can it also extend to a spouse or dependent?

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