Is "Umbrella" Insurance Worth it for "Average Joe" American?

[kyphysics]

Umbrella insurance means that which is above "normal" policy limits. Ex., you get an extra $1M in coverage against liabilities.

It's surprisingly not that much more money - maybe $100-$200 more per year ($10-$20 extra/month) on top of a normal insurance policy. It would cover your home and vehicle against liabilities (e.g., you crashing into a killing an entire family of people in an accident you're at fault in or a guest slipping on your wet dining room floor and becoming paralyzed).

By average Joe, I mean someone making between $50-$80,000/year or up to $175,000/year as a couple. I know there can be many variables involved, but am wondering in mostly broad terms (first) and maybe specific situations (if you can think of any interesting or ideal cases).

For the cost of a Netflix subscription, it doesn't seem like a bad idea, but most people I know don't do it.

 

[Haborix]

My understanding is that to get an umbrella policy you usually have to have significant coverage in the various underlying policies. I would guess that for rational people in the income range you specified they lack the assets, and thus the underlying policy coverage, to make umbrella policies a reasonable purchase.

 

[BWV]

check out the liability limits of your homeowners policy - they are typically 300K, if you have assets in excess of that an umbrella policy makes sense

 

[kyphysics]

check out the liability limits of your homeowners policy - they are typically 300K, if you have assets in excess of that an umbrella policy makes sense

I would think the scarier situation would be auto. It's kind of rare for one to lose a huge sum of money whether via self-home harm or some random thing harming a guest (such as the wet floor slip and paralysis situation I mentioned).

I recently upped my auto liabilities limits (which is I why I'm asking this) and was talking to my agent's office staff. There are genuinely scary scenarios out there for car crashes. You might think you'd never accidentally hit someone that leads to $1M in damages (which MOST people's policies just don't have - the agent even said it's rare for them to sign one that high), but it can happen from the most random thing.

My agent said the bare min. people should have (in his opinion) is the 1-3-1. $100K for liability of 1 victim. Up to $300K (post-$100K for V1) for all additional victims. And $100K for property damage. I had lower than that ($50K-$100K) and see how easily that could get breached in a simple accident.

As we started talking more, I realized you can easily even get a $1M case. Just think about it. . . . .If you hit a car and the person has some nerve/disc injury and is paralyzed, then you could owe that much (and more) if your coverage isn't high enough. They'll sue you directly for the difference and that could ruin you.

For the cost of an annual Netflix subscription, you could add an additional $1M in coverage. Most insured people don't have that per my agent.

 

[sandy stone]

I'm retired now, so we rely on our savings and Social Security for living expenses, with no obvious way to replenish the savings if, for instance, they were lost to pay off a liability claim. When I took over the operation of the children's sail camp at our yacht club, my wife was very concerned about my possible liability if there was an accident involving a student, and she insisted we look into an umbrella policy that could at least partially cover the loss of our savings. The insurance agent pointed out that a far more likely scenario for a major liability case was an auto accident, something neither one of us had considered. We did end up getting the policy.

 

[Grelbr42]

The rain it falls both
On the just and unjust fella
But chiefly on the just because
The unjust steals his umbrella.

 

[jack action]

Funny, just had this meme today:

 

[kyphysics]

Funny, just had this meme today:

View attachment 325892​

Epilogue: Well, you can now talk to my lawyer insurance.

Insurance: Okay, let's work something out so we don't both get hurt here.



One insurance industry - healthcare - is possibly even more twisted. I've read quite a lot of articles recently on power struggles between insured, hospitals/providers/pharma, and health insurers. As an Amazon shareholder, I was quite interested in their brief foray into trying to disrupt the healthcare industry, along with Berkshire Hathaway and JP Morgan. The three mega-cap blue chip companies have huge employee bases and tried to use them as leverage to create/negotiate better health plans and prices. Yet, that all-star team failed.

Not even Warren Buffett and Jeff Bezos' combined powers could meaningfully disrupt the legacy and deeply politically entrenched health insurance industry.

Counter-intuitively, health insurers don't dislike outrageous bills. They even WANT to pay them, b/c of how incentives are aligned. The ACA caps the profit many insurers can make by forcing them to spend x% of their premiums on benefits. One way around that is to increase the pie of the fixed % they're able to max out in profit. To do that, they need higher medical bills they pay out on, so they can also justify higher premiums (that in turn raises their max cap profit level). . . .It's a twisted logic.

Why Your Health Insurer Doesn't Care About Your Big Bills​

https://www.npr.org/sections/health...alth-insurer-doesnt-care-about-your-big-bills

Hospitals and Insurers Didn’t Want You to See These Prices. Here’s Why.​

https://www.nytimes.com/interactive/2021/08/22/upshot/hospital-prices.html

But, then, who usually loses? The insured, sadly, because our co-insurance goes up on those bigger bills. So too with our premiums.

And we don't have the bargaining power of the health providers and insurers, who work out dark/secret backroom deals on what to charge (that no one can usually see).

Some have figured out a way to fight back. A David & Goliath story that is pretty inspiring is this one involving a very unlikely hero in Marilyn Bartlett: https://www.propublica.org/article/...rs-do-not-have-to-pay-so-much-for-health-care

With enough numbers (tens of thousands of Montana state employees in this case), you can create market leverage and bargain down medical costs. It's in many ways simple economics and similar to economies of scale and bargaining power. Amazon kind of got bullied by the shippers when they were small. But once they grew to a sufficient size, they turned the tables and threatened UPS with doing business with competitors (even at a higher cost) if it didn't give them special low pricing. It worked and UPS caved. In the same way, Bartlett threatened to take a huge chunk of hospital network patients and have them go across state lines or smaller in-state competitors if the big boys wouldn't make transparent and lower their prices. It worked.

But Montana is a small state (population-wise). You'd need massive numbers in a state like NY, CA, or TX.. . Even middling states like Ohio or Virginia would require significant numbers that are probably tough to organize.