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  • Umbrella insurance usage

    I understand the typical rationale for umbrella insurance, and have it myself, but has ANYONE on this forum EVER heard of it EVER being used?  It seems like one of those things everyone has, but I also wonder if the claims rates are vanishingly small, or if when it comes time to use it you discover that it doesn't actually cover anything.

    Thanks in advance to anyone willing to share a real-world story.

  • #2
    It must be vanishingly small or else you couldnt get 5M dollars of coverage for 500 bucks a year. I certainly hope it never gets used, but I definitely find it worthwhile.

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    • #3
      I agree with Zaphod. It would be interesting if any of the insurance guys on here have any real-life data on claims.

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      • #4
        Right - in order for the rates to be so low, the claims experience/covered risks must be highly rare.  So, why do we think that we need to buy it?  Why do we find it "worthwhile" enough to purchase?  Are we being snookered?

        I also would love to hear any justification from an insurance professional or attorney on the forum.  I subscribe to a lot of the financial planning literature out there, and can't remember a good essay on the topic.  Ever.  Maybe I'll go research that after work.

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        • #5
          also never used it. i agree its part of the overall plan. however i disagree w/ equaling your net worth. im fine with my 1MM policy.

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          • #6
            Hello -

            I've worked in insurance for 7 years now, what I can say is the chance of penetrating the umbrella is relatively small. But it does happen, and when it happens, you'll be happy you have it. In the grand scheme of things, it's a small amount of money to gain access to a significant amount of capital.

            In my relatively short tenure, I haven't seen too many claims be paid out under the umbrella. Not because they are excluded, but because most payouts are less than $1m. I should note, I mostly handle commercial insurance where the first layer liability coverage is $1m. For personal insurance, generally speaking, the highest you can get is $500k on your homeowners policy before you need to buy umbrella coverage to gain access to higher limits.

            As for your last sentence, .."you discover that it doesn't actually cover anything". For personal insurance, while there is potential for coverage gaps, if you buy your umbrella from the same insurance carrier that you buy your underlying home/auto insurance from, you should be fine. As always, consult with your agent to make sure you understand what you're buying.

            Lastly, the claims I've seen that penetrate the umbrella are auto related accidents. Distracted driving, DUI, motorist hitting bicyclist.. etc. If you hit another car that has 3-4 people it in and they are seriously injured, bills rack up fast.

            Hope this helps.

            JD

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            • #7
              Things can happen that cant be predicted and neither can their magnitude. This is literally what insurance is for, random uncontrollable events. Health insurance is not insurance at all.

              It will and you hope it feels like an absolute waste of money. Until of course you do need it, then you'll be happy. It is very fairly priced so totally worthwhile. Like I said, I have 5M and it costs me about 500/yr, cant go wrong there.

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              • #8
                JD -

                Thanks for the real-wrold perspective.  Much appreciated.  I guess it is legit after all . . . just not needed very often!

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                • #9
                  Other thing to consider is that it might often be used as part of court settlements so people probably less willing to chat about when they lost in court for something i.e. Amazon driver slips on your icy steps.

                  Or if your policy is being pinged it might be part of ongoing litigation where public statements about it are discoverable.

                  Not sure how or if this affects "reporting" but it might be part of the phenomenon you're describing?

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                  • #10
                    Others have shared their experiences, i’ll add mine.

                    I adjusted speciality and high net worth claims for 10 years and saw a number of umbrella claims. They were a small percentage of the overall number of claims, but were often associated with fatalities, catastrophic and unpredictable accidents, severe but non fatal injuries requiring ongoing care, and with high wage earners.

                    Several of the worst ones involved poor decision making by children in the household covered by the policy. Think boating and car accidents, use of firearms, stalking/menacing. I worked with parents who never could have imagined the outcomes, but were glad that there was adequate coverage to resolve that element.

                    Umbrella coverage is another line of defense and can be helpful for claims that settlement towards the top end of the underlying coverage.

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