<p>Does anyone have tips on how to determine the coverage amount? It’s time for us to renew our umbrella policy. With a brand new driver, the premium increased quite a lot. I wonder if we should reduce the coverage and save on the premium. The new driver hardly drives.</p>
<p>Your total liability coverage (auto + umbrella) should be equal to your assets.</p>
<p>Should you cause an accident that you’re at fault for, the other party can either sue for your assets or accept a settlement from your insurance company, but can’t accept the settlement and sue you.</p>
<p>For example, say you have assets worth $1,000,000 but only have $50,000 insurance. You get into an accident, and the other drive doesn’t have underinsured motorist insurance. The other driver sustains injuries and is out of work for 3 months in a high paying profession. Realistically, his claims could come to $200,000. He could either sue you for $200,000 or accept the $50,000 settlement from your insurance company.</p>
<p>But if you had at least $1 million in insurance coverage, he’d take your insurance money rather than sue you.</p>
<p>Agree - the umbrella policy is asset protection. If you don’t have assets worth protecting, including a home, then drop it. If there is a serious accident in which the claim is more than the coverage you have, you will be advised by your insurance company that you should retain counsel in addition to whom they will provide. That cost alone can be huge. If you drop the umbrella policy, be sure that your limits under your policy are the maximum you can carry. With some companies, you can carry lower limits on the underlying policy when you have an umbrella policy. There is often some savings there, but not enough to counteract the addition of a new driver. </p>
<p>I considered dropping my umbrella policy when my D was put on the policy because the premium sky rocketed. I figured I’d just get it again after she was older or on her own. However, the company doesn’t offer this particular policy any longer so, if I drop it, I cannot get it back down the road.</p>
<p>maybe getting a lawyer on retainer?</p>
<p>The way I figure is that an umbrella will force the insurance co to fight the suit and try to minimize their costs vs an auto policy where they will just accept the lost.</p>
<p>we don’t have an umbrella.</p>
<p>LongPrime,</p>
<p>An umbrella policy is excess and surplus insurance that goes above and beyond the limits of your auto. In either case, the insurance company is required by law to pay the other party the amount that either a jury awards or a jury would award if it went to court. Auto insurance companies don’t automatically accep the loss and umbrella insurance doesn’t automatically fight the suit to minimize their cost.</p>
<p>I don’t have an umbrella either as I don’t own a home, and that’s generally a requirement for most umbrella policies. I could technically get a renters insurance policy that covers my liability, but that’s wasteful because I don’t really have much liability as a renter except when I drive an auto.</p>
<p>There something I don’t really understand. If a jury award exceeds the coverage, you are still responsible for the excess whether you have the asset or not. Isn’t it so? So how is the umbrella policy an asset protection?</p>
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<p>Yes, but it would be to the other parties best interest to accept your settlement of the policy maximum. They can’t accept insurance money if they sue you, and if they win more than you have, it’s really, really hard to collect on it. Lawyers, who work for money, would rather take the bird in the hand instead of the bird in the bush.</p>
<p>The reality is that when people are issued a judgment that is larger than they have the money to pay, they file for bankruptcy, pay a portion of the judgment (at bankruptcy judge’s discretion) and then it goes away. </p>
<p>(The only times that these things actually go to trial is if someone with deep pockets like a corporation or wealthy individual is on the hook.)</p>
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<p>True but then “can’t get blood out of turnip” kicks in. The plaintiff’s attorney will investigate whether there are assets to pursue. If no real assets that are easily taken, then they may agree to settle for policy limits or get a judgment in excess in case the defendant ever does obtain anything of real value, so an umbrella policy can protect future assets too. Most people don’t want their wages garnished to satisfy a judgment. If there is a home or other readily attachable assets, then they can pursue those things and take them to satisfy the judgment. </p>
<p>Longprime - I used to be an insurance defense lawyer, and we did not defend cases based on the amount of insurance. We defended based on the value of the case. If a case is worth $1m, then offering up $250k is not usually going to cut it. In a case with serious permanent injuries, it does not take long to get that value up to $1m. When we had a case that we valued at more than coverage, we had to call the client in to inform them that they had personal liability and that we could not make decisions based on that personal liability. In other words, we would not just offer policy limits to settle the case in order to protect their assets.If a jury award exceeds the coverage, you are still responsible for the excess whether you have the asset or not. Isn’t it so?</p>
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the settlement can also include claims against future earnings … and I believe bankrupcy does not cancel future claims like these … so even someone with minimal assets can be at risk if they have a lot of potential assets in the future.</p>
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<p>What do you mean by this?</p>
<p>Even after a jury award there are negotiations that go on - a plaintiff could decide to take a smaller amount offered by the defense, rather than go through years of appeals or years of trying to collect from the defendant (in many states you can homestead your house, which is typically your single largest asset, which would make it almost impossible to forcibly take; many retirement assets cannot be attached, either).</p>
<p>A sufficiently large amount of protection through an umbrella opens the possibility of these kind of negotiations. For example, if you have $1 million in coverage and are successfully sued for $2 million, chances are good you can work out a deal for just the $1 million. If you have only $50K in coverage, this might not be an option.</p>
<p>It also gives you the chance of working out a settlement before it even goes to trial. If I am suing you for $2 million, and you decide to offer me some reasonable percentage (say, 30%) of that before it goes to trial, I might take that rather than risk getting nothing in a trial. If you can only offer me $50K, I might be a lot more willing to face the jury.</p>
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Having recently been on the defendant end of a lawsuit (which would have been covered by my insurance company, and yes I have a fairly substantial umbrella), the insurance company’s lawyer told us they rarely settle cases these days, because they win an extremely high percentage of them (90%+). And when they do lose, juries are typically awarding much less than the amount they were sued for. The multimillion dollar judgments are extremely rare. But even without the umbrella, they would have fought it.</p>
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<p>My understand is that when the insurance company pays a claim, they are settling on your behalf and they can’t go after you personally.</p>
<p>If you get in an accident and there are $500k in bodily injuries, and you have $100 in liability coverage, the other person can’t take the $100k from insurance and then go after you for the rest. By accepting the $100k, they have settled the case and can’t take you to court.</p>
<p>But my understanding may not be correct.
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<p>If you only have $50k in insurance and $10k in assets, no plantiff will take you to the jury for the simple reason that you can’t pay a large judgement in the first place.</p>
<p>If you own a multimillion dollar ranch in Jackson Hole and only have $50k insurance, that’s a different story.</p>
<p>My experience with this is I caused a bad accident a few years back when I was first out of college. I had a $100k in liability coverage and the other persons injuries well exceeded this cap. </p>
<p>What eventually happened was my insurance company settled for $100k (max policy limits) and then it was up to his underinsured to pay the remainder of his claim or he went without.</p>
<p>I asked if they could sue me for the rest, and the claims adjuster said no, when they accepted the settlement, the insurance company had settled on my behalf and it was done.</p>
<p>I lived in an apartment at the time and drove a 7 year old car with many miles on it. Clearly not a good target for a lawsuit.</p>
<p>It was this point I realized that having insurance approximately equal to ones assets made sense to me, and that’s what I’ve always had.</p>
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What is the value of your future earnings? As noted by 3togo, these can be garnished.</p>
<p>And those judgments last essentially forever. You may have only $10K in assets now, but in 3 years you might have a lot more. You cannot always bankrupt your way out of the judgments, either (plus bankruptcy has its own headaches and consequences).</p>
<p>To take an extreme case, look at OJ Simpson - he lost a wrongful death suit and the plaintiffs were awarded $30 million. He moved to Florida where his house is basically untouchable, and his football pension cannot be garnished either. But every time he gets anything or writes a book or whatever, the plaintiffs take it away.</p>
<p>We’re not talking OJ here. We’re talking auto accidents.</p>
<p>Bankruptcy usually will discharge judgments. Auto accident judgments typically don’t last a lifetime.</p>
<p>My opinion is that it is financially unwise to carry more liability insurance than one’s assets.</p>
<p>babyontheway - I see what you mean now. I didn’t realize you were talking about settling. Yes, once you settle, you cannot be sued for the same occurrence.</p>
<p>Thank you all for interesting discussion. I think I understand it better now.</p>