insurance question

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Ladies and Gents,
My insurance company (who always seems to want to sell me MORE) contacted me suggesting that our automobile liability coverage is lower than the value of our house (house is about $800K). She suggests that our liability should be AT LEAST as much as the value of our house because if someone sues us for an auto accident, they could put a lean against the house.
It sounds logical. Years ago, I heard that if someone sues you because of an auto accident, their lawyers usually go for the easy money which is the amount of liability insurance you have on your car.
If this does turn out to be advisable, I intend to go out for quotes before changing my coverage.
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The word you're looking for is lien, but the problem you're talking about would be a judgment against you that would be satisfied by forcing a sale of your house.
You might want to look into an umbrella liability policy that covers you for any negligence on your part, including bad driving.
You say "our house," by which I assume you mean you and your spouse. If your state allows it, you might want to look into titling your house as tenants of the entirety. This is a legal fiction that means that each of you owns 100% of the house, which in turn means that the house may not be used to satisfy a judgment against just one of you.
If you own a house worth $800K, you might want to talk to a financial advisor or a lawyer about asset protection. It might cost a couple of hundred dollars, but disinterested advice might be preferable. By disinterested I mean that the advisors won't be trying to sell you something other than their expertise.
Just suggestions.
*** I am not a lawyer, so this can't be legal advice. *** *** I am not a certified financial planner, so this can't be financial advice. ***

<snip>
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Not true in New York: http://www.assetprotectionbook.com/NY_Sweeney-Kane_2004.htm
Here's an outline of major TBE issues: http://www.ilnb.uscourts.gov/JudgeWedoff/Opinions/TBEoutline.pdf
Le 27/7/07 08:32, dans Gchqi.31643$ snipped-for-privacy@newssvr23.news.prodigy.net,

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How much equity do you have in it? They can only get what you own, not the part the bank owns. I don't think that is much consolation, though.

I think this might be a good idea, to have more insurance if you have more assets, but that is because you can probably afford more insurance, not because of the reason he gives.
I don't agree with any of the harsh stuff Richard says, but I don't think there is any real relationship between how much insurance you need and the value of your house.
If they win in court and it's more than your car insurance, including any umbrella policy, they're going to put a lien on your house no matter how much or little your house is worth. Even if your house is worth 20,000 dollars, isn't that reason enough to pursue that part of the collections? They can get their 20 thousand minus expenses for just a few hours more work. I say this theoretically. Maybe someone with experience can tell me otherwise.

But he is a dead rat, so his advice might be rational.

You may have a lot of money, and that is a good thing, but in one way you need more insurance if you want to keep your money. In another way, anyone with any money needs the same amount of insurance. Say I have assets of 50,000 dollars and insurance of 50,000 and I do 5 million dollars worth of damage. They take my insurance and my 50,000 and which is all that I have and they can pursue me for maybe 20 more years to get more. Say you have 2 million dollars of assets and a million dollars of insurance and you do 5 million dollars of damage. They take youri insurance and your 2 million and can pursue you for maybe 20 more years too.
Of course it's very unlikely that either of us will do 5 million dollars of damage.
SAy we each do 500,000 damage, according to what the judge or jury awards, but this time you only have 300,000 in insurance.
So they take the same from me that they did in the first case, and they take "only" 300,000 from your insurance, and they then get 200,000 from your house. You probably won't have to sell. You'll just get a mortgage to pay the 200G. But it will still hurt.
Who will it hurt more, me for losing everytyhing I have but I only have 50,000, or you for losing 200G when you still have more left. I think it will hurt both of us the same, roughly, but in different ways.

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I'm not a lawyer, but I don't think that is accurate. No one will "put a lien on your house".
The law makes a distinction between secured and unsecured debt.
** A secured debt is a debt that is backed by a specific asset: if you don't pay, the creditor can seize the asset and sell it. (If the proceeds don't cover the debt, you still owe the remaining balance.) Typical secured debts are car loans and home mortgages.
** An unsecured debt is money that you owe but is not tied to any specific asset. Typical unsecured debts are credit-card balances. If you buy a big-screen TV or even a car with your Visa card, and you don't pay it, Visa cannot repossess what you bought.
Now, court judgments are like unsecured debts. If you lose a liability case, there will not be a "lien on your house" as several people have posted. In other words, it functions the same as a court judgment over an unsecured debt. You have to pay out of your general assets, and how you pay is up to you. If you don't or can't pay, there are supplemental proceedings. The judge can order specific assets sold or ultimately you can be forced into bankruptcy. But in bankruptcy your primary residence is usually protected.
How much liability insurance do you need? The answer isn't simple, but is a blend of how large your assets are (so you won't be forced into bankruptcy) and what size judgments are typical. You can't protect against a worst-case scenario because that's essentially infinite. So you protect against maybe the 90th or 95th percentile. As I've already posted, the marginal cost of coverage goes down as the policy limit rises. For example, if you raise your deductible from $250 to $500, you can probably buy many thousands in additional coverage with the saving in premium.
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bitterness and contempt." -- Nathan Rabin, /The Onion/
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Of course they will. As you noted in the part I snipped, others may have a prior claim, but the lien would put them in line for anything over and above what the secured debtors gets. In other words, while the mortgage company may have first dibs, the lien is placed to get them in line for any equity I may have when (if) I sell. It also makes it pretty much impossible in real life for me to go out and get additional secured debt, so I can't all of a sudden get another loan and hide the equity somewhere in the Caymans, so to speak.
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Kurt Ullman wrote:

Those would be "creditors", not "debtors"...
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Thanks. If you will excuse me I am going to get another cup of coffee (that's my story and I'm sticking to it)>
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I'm not either, but your advice is suspect. Bankruptcy may not wipe out debts owed through judgments, especially those connected to torts like negligence. A primary residence may be protected by homestead provisions of state law. Some states, like Florida, are notoriously generous to the debtor; others, not so much.

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I'm not either. :)

What does this provision mean? They can't foreclose on the lien, or they can't even collect when the person chooses to sell his house?
Plainly, if it's, say, a 30,000 dollar lien and a 500,000 dollar house, if they have to pay the lien when they sell, they'll still sell.
What about after death? If someone dies with an unpaid judgment, is his estate obliged to pay it? One of the few things I remember from a NY law school is about the commmon line in wills, "I direct my executor to pay all my debts". The professor said that that's required whether you say it or not, but I don't remember about unpaid judgments. I would think so.

I agree with all of this paragraph.
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Jim Patterson writes:

Your agent is hustling you with a phony pitch, *even though* your limits should be *much higher*. Your agent is appealing to your greed and dishonesty.
The limits on your insurance should have nothing to do with what you're worth.
The limits on your insurance should reflect the exposure, the liability. How much harm can you cause with your car? What will your liability be if you, say, run over a child backing up in a parking lot, and cripple that child for life? Shouldn't you be capable of compensating that child, if by your error you caused such misery? What has that got to do with your lousy house equity?
You have a moral obligation to carry insurance to cover potential damages.
High limits are pretty cheap. You should have them on your auto policy, and an umbrella for millions besides. Then you will be an honest and civilized driver, instead of the crud that hit and run. Where "run" means "too broke and stupid to pay for what you did".
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Richard J Kinch wrote:

You mean like Cities and States that ordain absurdly low Maximum Liability limits on themselves when they injure, maim, kill others via negligence.
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wrote:

ARe you talking about insurance?
I think cities and states were usually self-insurers, because they have enough money to pay whatever they are found to owe, and they can tax to get what they don't have. Insurance just generates the costs of paperwork and profits for the insurance company.
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mm wrote:

Self insurance.

Then why would the set perversely low maximum liability limits for themselves when found to be liable for harm to others?
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wrote:

My question above wasn't so good. I thought you meant they bought insurance with low liabilty limits.
They set their own liability low, because they don't want to pay. Governments still think of themselves as the king, as the successor to the king, that no one could sue and might get in big trouble for even complaining.
While the time limit for filing lawsuits against anyone else might be a year, in NYC or NYS, you have to file a 30-day notice of claim or you can't get anything. I'm sure loads of people lose their claims because they don't know about this requirement. AFAIK, other cities and states are similar.
The US Court of Claims exists I think because before it was created, one couldnt' sue the US at all, and even now, I believe it has extra rules that don't apply to suing individuals or corporations.
I'm sure there is a lot written about why all this is fair, but I haven't read it. It seems to me that it stinks.
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limits
liability.
be
do
policy,
This seems a tad harsh. The liability for a worst-case accident, crippling a child for life, is essentially unlimited. One certainly has a moral obligation to carry insurance to cover potential damages, but is that obligation for the worst case? Maybe it's greater than the legal obligation set by the state, but millions?
It is not an unreasonable strategy, legally and financially, to carry insurance to cover oneself for one's net worth. I don't think it's unreasonable morally, either, but YMMV.
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Deadrat writes:

That's absurd in several ways.
The risks and liabilities of operating a vehicle have *nothing to do with* bits in a bank computer or ink on some paper in the courthouse.
The opposite strategy is actually reasonable. If you have the net worth to pay a liability, then why make the bad-odds bet of buying insurance? Your expected outcome is better going bare.
People *without* net worth are the ones who should have auto insurance, to protect those they harm. This is called "responsibility". To not be able to pay your liabilities, because you lack the net worth and/or insurance, is the very definition of irresponsibility.

If you can't afford to pay for the harm you cause, either via net worth or via insurance, then you can't afford to drive and you should not be driving. Driving without insurance or with low limits is in effect to force others to pay for your privilege, also known as "stealing". The fact that ignorant and immoral people get away with it, doesn't mean it is right. The fact that it is a probabilistic process does not change the essential immorality. The fact that it is an accident without malicious intent does not remove your moral obligation to take responsibility for your own actions. You're playing a negative lottery game, but stealing the tickets.
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I agree that the risk of operating a vehicle has little correlation with one's net worth. Are you twice as likely to cripple someone for life if you're worth $800K instead of $400K? Of course, not. But that's not the question. If you cripple someone for life, are you more likely to pay $800K if you're worth $800K than if you're worth $400K? I don't think that's an immoral question to answer.

You're correct if you regard liability like a casino. If the odds are 1 in 800,000 that you'll cause accidents in your lifetime that garner judgments against you for $800K, then your expected loss is $1, and the smart bet is to pay no more than that for insurance. Of course, your state insurance laws probably won't allow that bet.
But that's not how people calculate risk. If your net worth of $800K were taken in a judgment against you, how much do you actually value that loss? Include working past the age you wanted to retire, forgoing college education for the kids, and so on.

No, this the definition of poverty. Those without net worth will simply not be able to satisfy the costs of disastrously injuring someone. But no one is arguing that poor people shouldn't have some minimum liability insurance. The question is about someone with a house worth $800K.

Of course, but the problem isn't calculating the harm you cause. Most people don't cause any. The problem is calculating the harm you will cause. And that is unknown.

*If* I cause someone a disaster. But what if I don't? And most people don't. Of course you should comply with your state's insurance requirements. But if you can afford more, how do you calculate how much more?

You have a very strange idea of "essential" morality. My essential morality involves what I actually do and what I can reasonably forsee myself doing.

You don't get to posit an accident. One hasn't happened yet.

I'm having trouble following this metaphor.
Answer me this. How much liability insurance should I carry? Remember that the worst thing I can do through my negligence may cost mutiple millions of dollars.
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Deadrat wrote:

If you're net worth is $800K and you don't have extra insurance, you lose all $800k when the judgment for millions comes down for crippling a child. If you're worth $800K and you have another $800K in insurance, you still lose your $800K and the insurance company pays out an additional $800K towards the multi-million dollar verdict.
Zero sum for the defendant either way.

And hence lack Financial Responsibility. There is no coincidence that many States don't call their statutes "Mandatory Insurance Statutes" but call them "Financial Responsibility" statutes.

What is the average liability award for the average traffic accident in the U$A ?

That's what actuarial statisticians are for.

They don't call them "accidents" for nothing ...

Whatever the law mandates.

Life is a gamble.
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Deadrat writes:

So your objection is that the future is unknown, and therefore we cannot precisely prepare for the eventual outcomes, so we have no moral obligation to prepare.
Accidents are a statistical process, as is insuring against them. One can never know how much insurance is enough. You make a judgment based on what it costs versus the level of confidence.
Think of auto accidents as a random enemy, like a burglar. You do what you can to stop the enemy. The fact that an enemy may someday come that overpowers your every preparation does not mean you should not prepare at all, or make minimal preparations. You have to make a balancing judgment between the likely enemies and how much you can afford to prepare.
You have no right to harm others with an auto accident and then not compensate them. You net worth is irrelevant.
Saying that whatever limit you choose is never enough, because there is always a rare calamity to exceed it, is like arguing Zeno's paradox. It doesn't mean that insurance with a limit is a bad idea, or that insurance won't pay off. It's just an excuse to cheap out on insurance and justify keeping the premiums you should be paying. This fallacy is popular because most people never have a serious accident and the outcome is happy despite the mispreparation.
That's the "negative lottery" game. You bet against a big, unlikely loss instead of betting for a big, unlikely win. You keep a little money by not buying insurance instead of spending a little money on lottery tickets. You lose big if you have a rare accident, instead of winning big if you hit the rare numbers. It's a mirror image of the lottery. Most people don't lose big in the auto accident game, like most people don't win the Powerball.
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