Now Covered By Umbrella Insurance
There is nothing that can derail your financial success or path to independence as fast as being held liable for some kind of catastrophic loss without the appropriate level of insurance coverage. Automobile and homeowners insurance (or renter’s insurance) cover only up to a certain amount of your liability if you or your property is involved in an accident. If your wealth exceeds those limits, you could be at risk.
That’s the case for umbrella insurance. It picks up where automobile and property insurance leave off. Shopping for umbrella insurance, until recently, was yet another task that I put off. A confluence of events reminded me to get this done: my initial meeting with an estate planner had me thinking about protecting my assets, and I received the renewal documentation for my renter’s insurance with Liberty Mutual, the same company that holds my auto insurance.
I called Liberty Mutual to review my current coverage and to ask for a quote for their umbrella insurance coverage. Nothing is as simple as one telephone call, so while I was able to adjust my renter’s insurance to protect more of my belongings, to find more information about the umbrella insurance, I was directed to a local agent.
We discussed my needs based on the total of my assets, and I was looking for a $5 million policy. That’s the upper limit of what this company offers. In order to qualify for any umbrella insurance, however, auto insurance and home or renter’s insurance must include coverage at specific levels of liability. My renter’s insurance already qualified, with $300,000 in personal liability coverage, but I needed to make a chance to my car insurance. The laws in other states may differ, but at least in New Jersey, to qualify for an umbrella insurance policy, according to the agent, one needs at least liability coverage of 250/500, or $250,000 per person and $500,000 per accident.
The agent needed some time to pull my information together for a quote. She called back, offering me the $5 million coverage for over $750 a year. The cost seemed high to me, so I didn’t make any commitments. I mentioned I would call her back. I turned to the internet for research, and saw that this type of cost was not uncommon for a high level of coverage. Basic coverage is $1 million, and that’s what most customers have. Thus, this lower level of coverage is relatively inexpensive. Once you begin looking for coverage at $2 million and above, the cost of the premiums tends to increase substantially, because the pool of customers at those levels is smaller.
I made a failed attempt to get a competing quote. I called GEICO directly to try to compare prices directly, but GEICO could not offer me coverage unless I had been invited to apply for their auto insurance. Otherwise, GEICO does not do business in New Jersey.
To move forward, I called the Liberty Mutual agent back and asked some more questions about coverage. Just about every question required her to check with her manager, and ultimately she came back and said that coverage at the $5 million level would require state approval. She suggested going with $4 million in umbrella insurance coverage while increasing my renter’s insurance liability to $1 million. Either way, my assets should be well covered — assuming any potential problem I face in the future is covered by insurance at all. This shift saves some money compared with leaving my renter’s insurance as is and going with the $5 million umbrella insurance coverage.
In total, the additional annual cost is about $650. That’s a small price to pay for additional asset protection. Of course, like any other kind of insurance, the mathematical perspective is only part of the story. If you never need to use your insurance, you’ve spent a lot of money over the course of your lifetime for a service the company never provides. And insurance companies do often make it difficult to qualify for legitimate claims.
But the alternative — being held liable without the proper insurance coverage — will quickly destroy any wealth you’ve been able to build, require you to liquidate investments or real estate, and possibly cut into your future earnings. I’m knocking on wood that I’ll never need to go through the process of filing a claim against this policy.
After I completed this quest, I sent my business insurance agent a quick email. Umbrella insurance and home insurance generally don’t cover anything that a self-employed individual or a business owner might be concerned about from a legal perspective, and I want to make sure my business liability insurance fills in the gaps left by my other policies.
Do you have an umbrella insurance policy?
Article comments
Apex, Why do you think insurance companies “almost always” pay claims? Luke’s article said they “often” deny claims and you say they “almost always” pay claims. These are pretty subjective terms. What is the % of actual claims that are denied? I don’t see much info on that kind of data. What if 5% of claims are denied, is that ‘often’? Is paying 95% of the time ‘almost always’? I found an older Money article that said that in 2005 there were 200,000 complaints about insurers and the common complaints are denials. In my state we had nearly 600 complaints per 100k people last year. That seems like a lot of complaints about insurance companies.
He said they often make it difficult to get paid for “legitimate” claims.
A legitimate claim is one that they have a legal obligation to pay. Are you telling me you think that insurance companies with any possible regularity at all are able to simply make it so that their customers are unable to collect on claims that the enforcing authorities would agree the client is entitled to? With hundreds of millions of insured policy holders in this country does it seem reasonable to you that this could happen at any rate beyond a sparse minimum without the outcry reaching the state insurance inspectors and attorney generals at which point the offending company is going to get investigated and eventually slapped with fines and penalties and if they don’t clean up they are going to get shut down. I haven’t heard of that happening to any company of any size.
As I was pointing out, that is very different from a dispute about what the policy actually covers which is spelled out in the policy details. And no I would not consider 600 complaints out of 100K as being often. But complaints is not the same as denied legitimate claims. Some of those 600 are certainly people who simply don’t understand their policy, some of them are likely from issues that would be considered a gray area, some of them are likely from fly by night insurance companies, if someone insures with a cheap company without a reputation to protect, well that’s their choice, but you get what you pay for. Then there are actually legitimate complaints. How many of the 600 are those? I don’t know, but I suspect its a small number. But even if every one of those 600 was legitimate it would still not be accurate to say companies often don’t pay. Corruption, greed, and incompetence are real so its never going to be zero but if you have insurance with a company with a national reputation and have a legitimate claim you are going to get paid with as much certainty as just about anything else in your life.
And as a way of comparison, how many complaints are there about banks? I bet a lot. Do you think banks just steal people’s money? Do they have tricky policies that catch people in late fees and overdraft fees. Many did. Did they have a legitimate legal right to charge the late fees that they charged? Yes they did. Did people think they were getting ripped off and complain? Yes they did. And did they get their money back? No they didn’t. Instead they changed some laws to make it harder for banks to have those kinds of policies because while they may have been tricky they were legitimate so they changed the law so that they were no longer legitimate. People can believe the banks were immoral for having those policies but their actions were legitimate.
Illegitimate actions by a company in this country is very hard to get away with regularly. If you violate the law they are going to smack you. What people are complaining about is the same thing they are complaining about with banks. They tricked me. I thought I had X and they say I only have Y but they sold it to me as X. Well I can’t know what was said and I am sure there are insurance agents who do nasty misleading things but in the end your policy says what is covered and if you are covered they are going to pay.
Is that really in dispute?
The problem comes when customers believe a claim is legitimate and falls within the company’s guidelines to be paid, but the insurance company disagrees. The problems you hear about most often come from loopholes in the companies’ policies, where based on interpretation, it could go either way. In borderline cases, you can bet the companies will consider the claim uncovered. Claims that should be legitimate can be declined by insurance companies because the “fine print” includes situational restrictions or limitations. A flood insurance policy may only pay if water reaches, say, twelve inches on the first floor; if the adjuster determines water reached only eleven and three quarters inches at the particular spot measured, the claim could be invalid, and the company would fight paying. The customer would fight, show measurements in a different location that exceed twelve inches, and it will take a long time to resolve, possibly through expensive courts, and who knows who will win. That’s how a legitimate claim can be fought hard by an insurance company.
I am sure this happens. I have heard of cases as you describe. A contractor who works with insurance companies is often a great asset in a case like that. They will fight the insurance adjuster just to get the work and are often adept at how to go about it. It rarely requires court.
I just don’t think often is the right word for this.
If a policy has a restriction like 12 inches of water how often is the flood actually at 11 3/4 inches or 11 inches. Borderline issues are not that common. Pure chance says you will rarely fall right on the border of a stipulation. And in cases where you do, one could argue that by the letter of the law it’s technically a toss up.
I have a mixed opinion on umbrella insurance. I think that generally its not that expensive so its worth getting if you have a need. On the other hand I don’t think most people really have a need and we exaggerate the risk of million dollar lawsuits. its very unlikely anyone will get sued for $1M much less lose such a lawsuit.
Personally I think $5M umbrella coverage seems like overkill. $650 is not a small sum to spend. Theres a lot of other forms of insurance that many people neglect which should be higher priority for your money. Higher life insurance, Long term disability, short term disability, long term care insurance, etc.
We’re in the process of getting umbrella coverage quotes, but it’s not very straightforward at all due to our property insurance. In Florida, if you have Citizens, you apparently often need a wrapper policy to go around your homeowner’s insurance before you can meet the minimum insurance requirements for most umbrella coverage. Umbrella coverage isn’t something I would want to do without an insurance agent I know and trust.
Ugh citizens is a nightmare! I have them for windstorm on my townhome. Can you let me know what you end up finding out? I’d be interested to know.
“And insurance companies do often make it difficult to qualify for legitimate claims.”
This is an unsubstantiated libel. What do you base this on? This is a common thing to be repeated about the presumably “evil” insurance companies but I am not aware of any basis for such a statement. Insurance policies spell out exactly what they cover and what they DO NOT cover. People are often careless in reviewing what is not covered. Then when the policy will not pay they claim the insurance company is trying to get out of paying.
Certainly there can be disputes about how a claim should be resolved. Does the entire item need to be replaced, can it be repaired, can it be partially repaired,etc. There may be disputes about such things but I have personally witnessed the exact opposite. Insurance companies being too quick to pay claims for hail damage on roofs etc. People getting new roofs left and right. The insurance company simply doesn’t care. If there are storms coming through and nearly every company is paying for new roofs then everyone’s premiums are going up. Insurance companies make money whether they pay claims or not. They simply adjust premiums to meet payouts.
The idea that “legitimate” claims are OFTEN made difficult to get paid seems like a bold and broad claim. I am sure it happens from time to time but I don’t see much evidence of it being a problem of any broad concern. If it was the state insurance commissioners would be all over it and the attorney’s generals would probably get in on the action too.
No, insurance works precisely because it almost always pays. If it didn’t people wouldn’t buy it.
I find that the problem is not always insurance companies not paying. I find that companies delaying payment to be a larger problem. The real issue with that is when people get car work or go to a hospital or have home repairs the person is liable for the costs. The insurance will often make the payment directly and quickly. Sometimes they wait to make payments and these bills may end up with late fees or in collections. People not understanding that they must make the payment and get reimbursement if the insurance company does not make payment fast enough. The insurance company will still usually make payment to the company that did the work and that company will be the one to reimburse you.
I have a friend who got an umbrella after being sued for a sidewalk “slip and fall” injury. It was basically a scam, but he spent a lot on lawyers because he was being sued in excess of his coverage. I don’t own a car, so an umbrella is out of the question. But, when I had a car, I always had more than the required liability. Having been in a very serious accident with life-threatening injuries, I saw how inadequate the minimum coverage is.
I have a $1M umbrella policy with State Farm. Because I have auto and homeowners with them as well it’s quite reasonable. It only took a couple horror stories of someone else (or their kid) getting in an accident and being sued for six figures to convince me. Then there are the dog walkers who slip on your sidewalk and on and on. I suspect the odds are small but I think the point of insurance is to protect against the rare but potentially catastrophic event.
I have had Umbrella liability coverage from MetLife Auto/Homeowners at the $1M level for several years costing now about $215 a year. I carry the minimum required underlying liability coverages for my Homeowners and Auto. Carrying more underlying coverage than required is redundant and more costly. You will only be covered to $1M, not the total of $1M + underlying coverage. Mostly I have an Umbrella policy to cover the legal/representation and bills that come with lawsuits, not necessarily any award. Going over $1M probably requires the Insurance company to go to the reinsurance market and pay other companies to share the risk for excess insurance.
Were did you get that idea? That is patently false!
If you have $500K underlying coverage on a 1 million dollar umbrella then you have 1.5 million of coverage. If you have 1 million underlying then you have 2 million of coverage.
http://en.wikipedia.org/wiki/Umbrella_insurance
Apex, you beat me to the punch. The umbrella goes on top of the primary coverage. Furthermore, the defense costs and other litigation expenses are paid by the underlying primary coverage (another error by Cinelliman) as well – so the umbrella is generally going to come into play only for the payment of a settlement or judgment. Many insurance carriers will write the umbrella only if they have the primary so that they control the entire liability claim.
On the auto insurance side, you may want to carry higher limits than the required underlying amounts for the increased UM/UIM (uninsured/underinsured motorists coverage). Which protects you and your family. Some umbrella policies cover UM/UIM.
Increased liability limits on your auto or homeowners/renters is generally pretty inexpensive, but an umbrella is a good way to go since it applies over multiple policies. That said, the $650 a year Flexo is paying sounds high. I think he may want to shop around a bit more.
Speaking of factually incorrect statements:
“Automobile and homeowners insurance (or renter’s insurance) cover only up to a certain amount of your liability if you or your property is involved in an accident. If your wealth exceeds those limits, you could be at risk.”
The amount of liability insurance vs. your wealth may be correlated, but they’re not inherently linked. As an extreme example If you have $250k insurance and $1 in assets, and someone wins a lawsuit against you for $250,001, they can and will take your dollar of assets. More realistically, if you follow this rule of thumb and have $250k of liability insurance coverage and $250k of assets, if someone wins a judgement against you for $500k they can and will take your assets.
That is correct and its even worse than that.
If you have 250K of insurance and 250K of assets and a good paying job and someone wins a judgement against you for 750K they will take the 250 from the insurance, they will take the 250 of your assets and they will put a judgement on you and garnish your wages for the other 250.
The idea that liability insurance should be linked to assets is kind of a strange notion to me. If you have no assets and no decent job most lawyers will tell the client the case is not worth bothering with. But if there is any potential there they will try to get that money no matter how long it takes.
Liability insurance should be linked to your greatest reasonable expected loss amount. If you have 1 billion in assets should you insure for 1 billion in liability. Heck no because who can justify a claim of liability for that much? Even if your assets are 30 million, who can come up with a liability claim for that much? If you work in certain high risk areas perhaps but otherwise if you are just a normal schmuck with tons of money sitting in mutual funds you do not need 30 million in umbrella coverage to cover you assets. I would even argue that the 5 million that Flexo is seeking is probably quite a bit outside most people’s risk profile.
You need coverage that matches your risk profile, not your asset base.