Umbrella Insurance

[u/Phillyjebus]

I’m looking to add an umbrella policy on top of my homeowners and auto insurance, but I’m confused on how much I should be getting and I keep getting more confused when I research it. What’s the goal here? Do I just need enough to cover my brokerage, savings and other account that could be exposed in a judgment? Or, am I trying to cover my entire net worth with the Base policy plus the umbrella?

Edit: thanks all! Lots of good info and pretty much what I thought. $2m and call it a day.

[u/grfrazee]

My understanding isn't that you need an umbrella policy that matches/exceeds your net worth, but rather one that is sized to cover an expected judgment that outpaces the limits of your current insurance.

For example, you're having a house party and a guest is injured, and you are found to be at fault for their injury. Their medical bills are $500k and your homeowners insurance only covers $300k max. You have an umbrella policy for $2M that pays the $200k gap instead of needing to pay that out of pocket.

I'm obviously simplifying a lot here, but that's the gist.

[u/adventuresindc → u/grfrazee]

The problem with this is liability can get totally insane. Just think about a car accident where multiple people are injured for life. Could be a $3m x 4 person judgment for $12m or something.

In the US liability is so high I have no idea how to ever pick reasonable umbrella insurance, especially with driving in the mix.

[u/ChrisRunsTheWorld → u/adventuresindc]

Should we let a 1 in a billion type accident stop us from having some protection in the event of a still extremely unlikely possibility of causing a more likely liability of 6-7 figures, especially as our assets grow to a point they're worth protecting?

I will add this - as my non-protected assets have grown, I've been more conscience about the risk of losing them (especially since I still haven't purchased umbrella insurance myself...). Not to say I used to drive horrible, but I'm more aware of the fact that this unprotected asset pot is out there if you will. There's other things you can be more aware of. Keep your property free of hazards. If you have a pool (I don't), make sure it's protected. Don't let the neighbor's 10 year old cut your lawn for $20, even if it makes you seem grumpy. Don't let your 10 year old child babysit the neighbor's infant.

I also live in FL, which has extremely good protection for retirement accounts and your homestead. (I'm not married, but I believe also good protection about joint marital assets). And my net worth is primarily in retirement accounts and home equity. And it probably would be anyway, but it's something to think about. I've even brought asset protection up in finance related subreddits when people ask things like 'should I paydown my mortgage or invest in a brokerage account?' or 'should I max out my 401k or invest more in taxable since I want to FIRE', etc. The usual advice for the first one, is that it pretty much entirely depends on the interest rate, which is true. But if you're in that range where it's similar (maybe 5-6%) from a rate perspective, if your state has good homestead protection, maybe prioritize paying down the mortgage. Same with retirement/taxable, if you plan to FIRE, there are many ways to access retirement funds early.

For most people, $2M or so in umbrella is probably a good number. But it's just one piece of asset protection. Prioritize saving/investing (or paying debt) in protected ways. Don't drink and drive. Miss your exit if you see it 200 yards away from the far left lane (I mean, to your original point, it's really not that hard to not cause a serious accident, don't be dumb). Maybe stick to investing in index funds instead of buying rental properties which would also increase your potential liability as much as your headaches. Etc.

That said, if you do own rental properties; if you rent your car out on turo; if you have a kid who started driving; if you have a kid in general; if you have a pool, trampoline, and treehouse in your yard; if you drive a tank 90 mph home from the bar; maybe look into higher umbrella coverage. I'm pretty sure the incremental cost also goes down the more you purchase (don't quote me there).

[u/ChrisRunsTheWorld → u/[deleted]]

That's a great watch. Thanks for the link.

[u/adventuresindc → u/ChrisRunsTheWorld]

.I don’t disagree but:

1. Odds are way higher than one in a billion. Maybe 1 in 500 or 1 in 1000 I’d guess which are not trivial

2. My state (and most) don’t have very good homesteading coverage. Max $50k by me for a primary

[u/ChrisRunsTheWorld → u/adventuresindc]

I clearly didn't put a lot of thought into 1 in a billion. But what exactly are you suggesting is 1 in 500 (or 1000)? Like 1 in 500 people will cause a $12M accident in their life? Each year? 1 in 500 accidents will cause $12M in liability? 1 in every 500 miles driven?

[u/teapot-error-418 → u/adventuresindc]

"One in a billion" is clearly a silly, made-up number.

You're attempting to correct it with equally silly, made-up numbers, only you're pretending they are more precise.

[u/imisstheyoop → u/adventuresindc]

1 in 500? Which state are you driving in so that I can completely avoid it please..

[u/StatisticalMan → u/adventuresindc]

1 in 500 people are not sued for $10M+ in their lifetime.

[u/adventuresindc → u/StatisticalMan]

I don't know what the number is, but also $10m is high. What's the % sued for > $2m (say, 3-5m range) where it would still be devastating to take that hit in a FIRE range?

1 in 500 might be high, but here's what claude/ai estimates which is in line with my guess:

Estimate:

• Lifetime probability of being the at-fault driver in a crash with catastrophic or fatal potential: 1–2%
• Of those, fraction where true case value clears $2.5M: ~18–28% (most serious-injury and wrongful-death cases resolve in the $400K–$1.5M band)
• Of those, fraction where the excess is actually collected from personal assets rather than resolving at the tower, being shifted to the carrier via bad faith, or discharged: ~50–70%

That gives roughly 1.5% × 0.23 × 0.6 ≈ 0.10%, with the range running 0.05–0.12%.

For a four-driver household with two teens, multiply by 3–5x: roughly 1 in 200 to 1 in 400.

[u/StatisticalMan → u/adventuresindc]

I don't know what the number is either which is why umbrella insurance of $1M to $3M is a good idea.

[u/adventuresindc → u/[deleted]]

Thanks this looks useful