One of our members recently got in a fender bender at a stoplight. The other driver hired an ambulance chaser who delivered the lawsuit with exactly one day to spare within the statute of limitations.
Right now, another one of our members is getting got by another ambulance chaser. It was a teeny tiny fender bender with his teenage son, and suddenly, the victim is on her deathbed.
I’m not sure how those people live with themselves, but it’s better to know they’re out there and prepare accordingly
What’s interesting is the ambulance chaser going after the teen’s dad was somehow able to strong-arm their insurance company to tell them how much umbrella liability they have to see if the case was “worth it.”
So our member naturally asked – Are you sure I should carry that much policy? Seems like it only attracts lawsuits.
To which I replied – It’s better they sue you for your umbrella policy than for your house.
But that prompted me to get to the bottom of an age-old question – why is the recommended amount for liability your total assets, including your house? (With a minimum of $1M and a maximum of $5M.)
And it turns out it’s because that’s what’s best for the ambulance chasers.
Full disclosure: what follows IS Gemini-generated, but I passed it by my attorney friend who has experience defending these cases, and he replied “Yup, that’s about it in a nutshell.”
CASH VS. PAPER
To understand why shrinking your policy is a terrible idea, you have to understand how personal injury lawyers get paid. They work on contingency, taking roughly 33% to 40% of the actual cash they collect for their client.
Because of this, lawyers are inherently lazy collectors. They want liquid, guaranteed cash that clears in a matter of days.
CASH: An insurance policy payout is a guaranteed wire transfer.
PAPER: A court judgment against your personal assets is just a piece of paper.
Turning that paper into actual money is a nightmare. To go after your personal property, a lawyer has to drag you through years of post-judgment court hearings, navigate state homestead exemptions, pay off your mortgage company first, and fight your defense team.
Worse, if they push you too hard, you can simply declare Chapter 7 bankruptcy and wipe out the civil judgment entirely.
If you file for bankruptcy, the lawyer gets 40% of zero.
THE UMBRELLA FIREWALL
If lawyers prefer the easy insurance money, the entire goal of an umbrella policy is to make the insurance payout the most attractive option on the table.
Imagine that “teeny tiny fender bender” turns into a sympathetic jury awarding $1.5 million in damages:
The Low-Coverage Trap: You have $2 million in personal assets but only a standard $250,000 auto policy. That $250k won’t cover the judgment. Because the gap is so massive, the lawyer has no choice but to endure the headache of suing you personally to seize your assets. Your small policy forced their hand.
The Umbrella Firewall: You have those same $2 million in assets, but you carry a $2 million umbrella policy. The lawyer looks at the case and realizes they can take a guaranteed $1.5 million check from your insurer today, or spend three grueling years trying to force the sale of your home while risking you filing for bankruptcy.
They will take the insurance check 99 times out of 100.
Your umbrella policy isn’t a target. It’s a pile of cash you purposefully place in front of your actual wealth to distract them so they leave you alone.
WHY CAP IT AT $5 MILLION?
If more insurance is better, why do we generally cap the recommendation at $5 million?
Statistical Reality: The vast majority of catastrophic claims settle for well under $5 million.
Market Pricing: Buying standard umbrella policies in $1 million increments is incredibly cheap up to about $5 million. Scaling past that requires expensive, specialized commercial underwriting.
If a lawyer starts sniffing around your policy limits, they aren’t looking for a reason to ruin you. They are looking for a reason to settle quickly with your insurance company instead of coming after your life savings. Keep the shield up.