Gents, we were shopping for insurance quotes the other day and one of the insurance companies talked about an umbrella policy. This is something we've never had and never thought about. What are your thoughts on an umbrella policy as far as mitigating risk? Additionally, I noticed quite a lot of homes in our neighborhood are in trusts. Some are in LLCs. What are your views on these? Is one preferred over the other? What are the setup costs on each of these options (I already know the costs for an umbrella policy)? Do you recommend one over the other? How expensive is it to set up each?

Our net worth is halfway to 8 figures so I guess it's something we need to think about. Your help is much appreciated.

Just my opinion...if you are halfway to 8 figures I would recommend an Umbrella policy. You can find them online and most seem to max out at $4 million. Re-up annually.

Just one thing to look for. On the renewal, our last policy the premium when up and the coverage was reduced by 50%.

Also, our real estate holdings are all in a Revocable Trust.

House in a trust, offers a bit of protection but mainly makes it easier to deal with upon your death.

Umbrellas can go higher than $4M-$5M, but they typically require an added rider at double the cost... I assume the logic from the insurance companies is if you're getting sued for more than $5M, then you need to be more expensive to insure.

Umbrella is going to be much easier if you plan to do any kind of buying, selling, refinancing. If you have any raw land, Texas farm bureau for that.

All we're really looking for is to mitigate lawsuit risk in the event of a car accident, accident at our home, etc. where the insurance has paid out the max and they come after us personally.

I just went through a bunch of this last year. As long as the scourge of humanity known as Trial Lawyers exist, there is always the risk of having someone come along and try to take away what you have built up.

I have always had an Umbrella policy, I can't remember off the top of my head what dollar figure it covers and how much I pay for it.

Last year, I got with my attorney and discussed my will, insurance products, etc. From doing my research and from what he said, a single member LLC made sense. The guy I use strongly prefers those established in Nevada - he thinks they offer some of the best creditor protections available. We did discuss making a multi member LLC, which would add an extra level of protection, but it would also generate another separate tax return, as a single member LLC is a disregarded entity under IRS rules. It WAS, however, much more painful than I might have thought moving assets from my accounts into the newly established LLC, as we had to create new accounts for everything that the broker (Schwab) could hold within an LLC.

I never have thought of putting my primary home into an LLC, as it has always been my understanding that primary residences (and Qualified plans) are fairly creditor protected in the event of a lawsuit. When I did have rental property, and when my vacation/retirement property will be finished, that did/will go into a separate LLC.

Good luck.

My Progressive umbrella is at $1M with a house and four drivers on my auto policy. Yearly premium around $450. You will likely have to raise your home/auto liability limits (home=$500k; auto $250k/$500K min.).

I just renewed it the other day and my daughter got into a fender bender with a Porsche. The claim was open for longer than I wanted it to be. Me thinking they were gonna go bodily injury claim and property damage. They didn't, but I'd rather be safe than sorry for $450.

Thanks guys. The quote we got through Progressive was $1400/year for $5MM. I'm already spending $8,000/yr for homeowner and car insurance and now I need to add another $1400 on top of that?? It is what it is, I guess.

For someone around $5MM net worth, I wouldn't stop with the umbrella quote from Progressive. The mass-market personal lines carriers are typically fine for $1MM-$5MM, but once you're looking at meaningful wealth, teen drivers, rental property, pools, maybe household employees, or other higher-risk exposure, it's worth having an independent broker shop HNW markets too.

Carriers such as Chubb or PURE may not only be able to offer higher limits, but the policy language can be a lot broader. The value isn't always in lower premium; it's better claims handling, broader personal injury coverage, and stronger provisions. At $5MM, I'd want to at least see quotes and coverage comparisons from Progressive and an HNW independent broker before deciding.

Guys, I very much appreciate all the good information you've shared. Much thanks to each of you.

LLCs, etc.
There is some similar information in this thread from a few years back, particularly helpful suggestions from Casey TableTennis.

AggieInHouston said:

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For someone around $5MM net worth, I wouldn't stop with the umbrella quote from Progressive. The mass-market personal lines carriers are typically fine for $1MM-$5MM, but once you're looking at meaningful wealth, teen drivers, rental property, pools, maybe household employees, or other higher-risk exposure, it's worth having an independent broker shop HNW markets too.

Carriers such as Chubb or PURE may not only be able to offer higher limits, but the policy language can be a lot broader. The value isn't always in lower premium; it's better claims handling, broader personal injury coverage, and stronger provisions. At $5MM, I'd want to at least see quotes and coverage comparisons from Progressive and an HNW independent broker before deciding.

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I have a large umbrella policy from Pure and totally agree with these comments. Luckily I haven't had to use the umbrella but have used the auto with pure and their customer service is top notch

For property, I read recently to title property in a land trust and name an LLC as the beneficiary of that trust... i'm not a lawyer, but seems interesting.

My policy is through Chubb. Was actually able to get through employer at a great rate (they subsidize a heavy portion).

My advice is an Umbrella is well worth it at that net worth

I carry 5 mill at usaa.. and pay 3100 so your sounds solid

I also am in the process of creating a trust and series LLC for my other assets.

In my experience, umbrellas have gotten disproportionately expensive, I'm guessing because insurance companies don't want to deal with them anymore.

I was originally with State Farm. Over 4 or 5 years, the premium more than doubled. Switched to Progressive last year, and that premium went up significantly this year. Am now with a private insurance company.

I just paid $584 for $1MM in coverage. State Farm had increased to over $800 when I moved away from them. Progressive had also gone up to over $800 from $500-ish last year to this year.

$1400/year for $5MM seems like a steal compared to the rates I'm getting.

My advice - use a broker to shop policies for you.

Also, the price of your premium will be affected by any speeding tickets on you, your spouse's, or your children's records.

I do high net worth insurance for a living. An umbrella is extremely prudent and almost necessary if you have a net worth over $1m.

The first thing insurance pays for is legal defense when sued (assuming when you are sued you claim it under insurance). Most think it's only there to pay for a judgment against you but in reality, the insurance carrier is going to deploy their lawyers at their cost to get you out of this lawsuit.

I would rather my clients use carrier money than their own money to go through this. For $1400, one lawsuit and you have made the insurance carrier upside down on their policy with you for decades. Food for thought.

DfwAg11 said:

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The first thing insurance pays for is legal defense when sued (assuming when you are sued you claim it under insurance). Most think it's only there to pay for a judgment against you but in reality, the insurance carrier is going to deploy their lawyers at their cost to get you out of this lawsuit.

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This.

That's the main reason I buy liability insurance, and the main reason I encourage my small business and self-employed friends to have it.

Some of the sharpest attorneys I've ever been around have been the insurance defense guys. Most have seen every trick in the book that plaintiff's lawyers throw at them and they are prepared for it.

Of course, sometimes when you have an incident so gruesome, or you are so unpopular, or you are known for having extra deep pockets, even the best insurance defense guys will have their work cut out for them.

But here in Texas, if the plaintiffs offer to settle within your policy limits, and the insurance company rejects that offer, they are on the hook for any judgment in excess of policy limits.

The odds of my getting an attorney as good as what the insurance companies use are slim and none. And the cost if I went out and hired him ... damn.

Consider your liability insurance as having an attorney on retainer. It's a cost of doing business.

OTOH, my old man used to say if he could afford all the insurance he needed, he wouldn't need insurance. ;-)