What’s Your Comfort Zone in Regards to Insurance Coverage?

[frcabot]

4 hours ago, ArtVandelay said:

CA has limits on IRAs, whatever the court deems necessary for you to live on, and some accounts are protected by federal law (401k) so it doesn’t matter what state you’re in.

A) This is false. IRAs are also protected by federal law up to $1,362,800. C) work-related IRAs (eg Rollover IRAs) have unlimited protection as long as you don't commingle your rollover IRA with another IRA (in which case, if you have an IRA with a balance over $1.4M, you'd have to sort out what came from the 401k/Rollover and what didn't.). In any case the limits are so high that for most people their IRAs will be fully protected regardless of what state they live in. Moreover when you file bankruptcy you can choose to use the federal or state exemptions, whichever is more generous. 

For most people who switch employers or retire, rolling your 401k into a Rollover IRA is a good idea as there are usually no IRA fees (whereas 401k can be quite costly) and the investment choices are much greater. 

Signed,

--A lawyer, but this isn't legal advice. 

Edited August 28, 2021 by frcabot

[frcabot]

23 hours ago, MikeOH said:

But are 401ks FULLY protected?  As in, can the courts order some of what you withdraw to be garnished even if they can't directly raid the 401k itself to satisfy a judgement?

They are fully protected as well as any cash you draw out of it in the future. When your bankruptcy is discharged, all your debts are wiped so nothing can be garnished further. The exceptions are for things like willful torts, which can't be discharged. That's why OJ is sitting golden, his income mainly comes from his NBA pension and it's totally untouchable. (I.e. even though the judgment against him for wrongful death is nondischargeable (because a civil jury found he murdered the victims, ie committed a willful tort), only non-exempt assets can be garnished; this doesn't include his pension or retirement assets, but includes non-retirement income, like the advance he got for writing the "(If) I did it book" as well as the rights to the book itself). 

Edited August 29, 2021 by frcabot

[Vance Harral]

Not yet mentioned in this thread is that when you purchase liability coverage from an insurer, you are also purchasing a "duty to defend" from them.  In the event of a suit which exceeds policy limits, the insurer's internal or contracted attorneys are obligated to try to convince the injured party (or their insurer, in the case of subrogation) to settle within your policy limits.  Usually this comes in the form of legal/practical threats.  e.g. "You can have $100K from us right now, with no trouble.  But if you want more, you'll have to fight for it in court, and ultimately walk away with even less than $100K."

Reasonable people can disagree on the value of this defense by the insurance company, and I won't rehash that debate here.  But it is important to understand that if you're sued for an amount that exceeds your policy limits, your insurance company doesn't get to simply say, "Oh, well, that's too bad - here's the $100K we're on the hook for, anything else is your problem".  Doing so would constitute breach of contract.  This duty-to-defend protection is one reason some people are comfortable accepting lower policy limits.  Whether you get more/better lawyering with a higher policy limit is anybody's guess.

Also worth noting that in some cases, insurers simply won't write smooth and/or high-value policies for a particular combination of aircraft and pilot(s).  In those scenarios, the choices are to accept lower limits, go naked, or stop flying.  Most people choose the first.

[frcabot]

16 hours ago, Vance Harral said:

Not yet mentioned in this thread is that when you purchase liability coverage from an insurer, you are also purchasing a "duty to defend" from them.  In the event of a suit which exceeds policy limits, the insurer's internal or contracted attorneys are obligated to try to convince the injured party (or their insurer, in the case of subrogation) to settle within your policy limits.  Usually this comes in the form of legal/practical threats.  e.g. "You can have $100K from us right now, with no trouble.  But if you want more, you'll have to fight for it in court, and ultimately walk away with even less than $100K."

Reasonable people can disagree on the value of this defense by the insurance company, and I won't rehash that debate here.  But it is important to understand that if you're sued for an amount that exceeds your policy limits, your insurance company doesn't get to simply say, "Oh, well, that's too bad - here's the $100K we're on the hook for, anything else is your problem".  Doing so would constitute breach of contract.  This duty-to-defend protection is one reason some people are comfortable accepting lower policy limits.  Whether you get more/better lawyering with a higher policy limit is anybody's guess.

Also worth noting that in some cases, insurers simply won't write smooth and/or high-value policies for a particular combination of aircraft and pilot(s).  In those scenarios, the choices are to accept lower limits, go naked, or stop flying.  Most people choose the first.

Yes but keep in mind that the defense costs apply against the policy limits (eg if you have a $100K per passenger limit and your passenger sues you and your insurance company spends $100K on lawyers defending you, then there's no further obligation to pay anything). Lawyers are expensive and $100K doesn't go very far in a contested matter. Again, if you're judgment proof it doesn't much matter, but if you're not, you want to have enough liability protection to at least equal your non-exempt assets. 

Edited August 29, 2021 by frcabot

[Vance Harral]

7 hours ago, frcabot said:

Yes but keep in mind that the defense costs apply against the policy limits

I suppose that may be true of some policies, but it is not true of any policy I have ever held.

My current policy is with Avemco.  Per https://www.avemco.com/products/owner/owner they state that, "Avemco’s policy also includes unlimited legal defense costs."

One of the interesting things about Avemco is, they do no offer "smooth" liability insurance to anyone, for any reason, at any cost.  They're just not in that business.  One time I asked an Avemco rep why that was, and they claimed that because Avemco is well known in the industry for only providing liability policies with per-passenger sublimits, and aggressively defending those sublimits with no limit on legal defense costs, they have been extremely successful in convincing litigants to settle within the stated sublimit.

That statement is just a marketing pitch, of course.  I'm not trying to shill for Avemco.  But again, it is not universally true that the costs of duty-to-defend are applied against the policy limits.  As is always the case, read your own policy carefully.  Insist on receiving a copy of the full contract, not just the summary page you receive when you get a quote.

[frcabot]

12 hours ago, Vance Harral said:

I suppose that may be true of some policies, but it is not true of any policy I have ever held.

My current policy is with Avemco.  Per https://www.avemco.com/products/owner/owner they state that, "Avemco’s policy also includes unlimited legal defense costs."

One of the interesting things about Avemco is, they do no offer "smooth" liability insurance to anyone, for any reason, at any cost.  They're just not in that business.  One time I asked an Avemco rep why that was, and they claimed that because Avemco is well known in the industry for only providing liability policies with per-passenger sublimits, and aggressively defending those sublimits with no limit on legal defense costs, they have been extremely successful in convincing litigants to settle within the stated sublimit.

That statement is just a marketing pitch, of course.  I'm not trying to shill for Avemco.  But again, it is not universally true that the costs of duty-to-defend are applied against the policy limits.  As is always the case, read your own policy carefully.  Insist on receiving a copy of the full contract, not just the summary page you receive when you get a quote.

Did not know that about Avemco, thanks. Too bad they are 2x the cost of other insurers. 

[Vance Harral]

1 hour ago, frcabot said:

Too bad they are 2x the cost of other insurers. 

My understanding is that's an accurate criticism in most cases of experienced pilots with lots of time in type - which is the typical Mooneyspacer.  But interestingly, Avemco is often the best price for low-time pilots transitioning to new aircraft (new Mooneyspacers), and for partnerships and flying clubs (we added a low-timer to our partnership at the end of last year).  They also have the best combination of price and service I've found for CFI insurance.  Because of this, I've cycled in and out of Avemco policies multiple times over the last 20-ish years.

One thing I respect about Avemco is, they seem pretty straightforward about what subset of the aircraft insurance business they want to be in.  They are not trying to please every potential customer.  Again, I've cycled in and out of Avemco vs. brokered insurance several times, and have been satisfied doing so - they always wish me well when I leave, and welcome me back when I return.  I'm not yet of an age where I think I need to worry about sticking with a single insurer to avoid getting dropped based on age.  But that's coming soon enough...

[Will.iam]

5 hours ago, Vance Harral said:

.  I'm not yet of an age where I think I need to worry about sticking with a single insurer to avoid getting dropped based on age.  But that's coming soon enough...

And what age might that be? Asking for a friend. 

[jetdriven]

On 8/28/2021 at 11:36 PM, Vance Harral said:

Not yet mentioned in this thread is that when you purchase liability coverage from an insurer, you are also purchasing a "duty to defend" from them.  In the event of a suit which exceeds policy limits, the insurer's internal or contracted attorneys are obligated to try to convince the injured party (or their insurer, in the case of subrogation) to settle within your policy limits.  Usually this comes in the form of legal/practical threats.  e.g. "You can have $100K from us right now, with no trouble.  But if you want more, you'll have to fight for it in court, and ultimately walk away with even less than $100K."

Reasonable people can disagree on the value of this defense by the insurance company, and I won't rehash that debate here.  But it is important to understand that if you're sued for an amount that exceeds your policy limits, your insurance company doesn't get to simply say, "Oh, well, that's too bad - here's the $100K we're on the hook for, anything else is your problem".  Doing so would constitute breach of contract.  This duty-to-defend protection is one reason some people are comfortable accepting lower policy limits.  Whether you get more/better lawyering with a higher policy limit is anybody's guess.

Also worth noting that in some cases, insurers simply won't write smooth and/or high-value policies for a particular combination of aircraft and pilot(s).  In those scenarios, the choices are to accept lower limits, go naked, or stop flying.  Most people choose the first.

I agree, the defense is worth a lot, if the plaintiff wants huge money, you can spend a tremendous sum defending.

[MikeOH]

On 8/29/2021 at 1:15 PM, frcabot said:

Yes but keep in mind that the defense costs apply against the policy limits (eg if you have a $100K per passenger limit and your passenger sues you and your insurance company spends $100K on lawyers defending you, then there's no further obligation to pay anything). Lawyers are expensive and $100K doesn't go very far in a contested matter. Again, if you're judgment proof it doesn't much matter, but if you're not, you want to have enough liability protection to at least equal your non-exempt assets. 

HUH??

Now you've got me worried.  Need to go read my policy, but I always thought the duty to defend was ENTIRELY separate from the amount they were on the hook to pay out in a judgement.

Just to be clear: You are saying that if I have $100K limits, and my insurance lawyers spend $100K defending me, the plaintiff wins $100K, then I am on the hook to pay out the $100K???  That just doesn't seem rational.

For example what rate does the insurance company get to apply to THEIR OWN LAWYERS?  $500/hr, $1,000/hr, ??  So sorry, we spent 100 hours on your case and it's almost ready for trial...good luck, buddy!!

[Vance Harral]

1 hour ago, Will.iam said:

And what age might that be? Asking for a friend. 

@Parker_Woodruff is the guy to ask.  I'm not sure there's a specific cutoff, but my recollection is that Parker recommends becoming more loyal to a single insurer as you progress toward septa/octagenarian status.  The theory seems to be that at least some insurers will carry a loyal customer a bit past the age where they'd decline coverage on a new client.

[Hank]

But I suspect there'll come a time / age when we each have to sell the Mooney and get something whose legs don't fold. Make mine with two wings, please!

[toto]

1 hour ago, Will.iam said:

And what age might that be? Asking for a friend. 

The scary threshold for insurance seems to be 80.  At least where high performance or complex aircraft are concerned.

The UFOs have nice things to say about Avemco in this regard.

https://www.ufopilots.org/post/aircraft-insurance-issues

Basic advice from Parker and everyone else seems to be: don't change underwriters after 80.  Stick with the same company, and keep continuous coverage.

[Parker_Woodruff]

On 8/28/2021 at 12:20 PM, frcabot said:

The $1,000,000 policies usually come with only $100,000 per pax (at least all of mine have) so they are pretty useless. A much better policy has a $1,000,000 Combined Single Limit, with no per passenger caps.

I need a high liability limit as I have significant assets ($5+M) and am having a hard time finding an insurer to give me over $1M without exorbitant rates. 

Get $1MM Smooth and then have your broker get an excess policy.

[Parker_Woodruff]

On 8/29/2021 at 3:15 PM, frcabot said:

Yes but keep in mind that the defense costs apply against the policy limits (eg if you have a $100K per passenger limit and your passenger sues you and your insurance company spends $100K on lawyers defending you, then there's no further obligation to pay anything). Lawyers are expensive and $100K doesn't go very far in a contested matter. Again, if you're judgment proof it doesn't much matter, but if you're not, you want to have enough liability protection to at least equal your non-exempt assets. 

Almost every aviation insurance policy, at least every carrier we deal with, does not subtract defense cost from the liability coverage they will pay.  Defense cost to the insurance company is unlimited.

[Parker_Woodruff]

Regarding the posts above with pilot age, there is a strategy depending on the type of aircraft you fly.

We start the planning and making decisions at age 64, do a checkup at 68/69, review again at 74 and 79.

[jetdriven]

2 hours ago, Parker_Woodruff said:

Get $1MM Smooth and then have your broker get an excess policy.

We tried that, our renewal for 1M smooth was 4231$, up from 2064$.   All others refused to quote.  100K sublimits was 2703.   no other options for smooth, all other sublimits were more.

Im a 13K hour ATP, my wife has 1K hours and no IFR. no bad history.   This is a bad time to be paying insurance.

[PT20J]

I did risk management as part of my job for years. There are four classic ways to manage risk: Avoid (don’t fly), Accept (self insure), Mitigate (reduce the risk — perhaps don’t fly passengers), or Transfer (insurance is the classic method to transfer a financial risk to another entity).

If the risk is real, it does little good to underinsure, regardless of the cost savings, unless you can truly afford to self insure for the uninsured portion of the risk. 

Skip

[Parker_Woodruff]

2 hours ago, jetdriven said:

We tried that, our renewal for 1M smooth was 4231$, up from 2064$.   All others refused to quote.  100K sublimits was 2703.   no other options for smooth, all other sublimits were more.

Im a 13K hour ATP, my wife has 1K hours and no IFR. no bad history.   This is a bad time to be paying insurance.

$1MM smooth on a SERG with no instrument rating in this market is basically limited to 1-2 good carriers...and they know it...

[MikeOH]

1 hour ago, PT20J said:

If the risk is real, it does little good to underinsure, regardless of the cost savings, unless you can truly afford to self insure for the uninsured portion of the risk. 

Skip

Excellent point!  And, anyone with a net worth over $1 million is exposed with nearly all aviation policies (even if you do NOT carry passengers)

So, @Parker_Woodruff, how often do GA crashes result in judgements in excess of $1 million (NOT counting passengers).  IOW, how often does a GA crash impact someone/something on the ground in excess of $1 million.

[Hank]

7 hours ago, MikeOH said:

Excellent point!  And, anyone with a net worth over $1 million is exposed with nearly all aviation policies (even if you do NOT carry passengers)

They are also exposed every time they leave their home, and whenever anyone (family, friend, neighbor or stranger) walks onto their property. Personal Injury lawyers always pursue deep pockets, wherever they may be . . . .

[PT20J]

7 hours ago, Hank said:

They are also exposed every time they leave their home, and whenever anyone (family, friend, neighbor or stranger) walks onto their property. Personal Injury lawyers always pursue deep pockets, wherever they may be . . . .

Yes, but you can buy pretty inexpensive umbrella coverage for that. It's just that it always excludes aircraft operation.

[MikeOH]

13 hours ago, Hank said:

They are also exposed every time they leave their home, and whenever anyone (family, friend, neighbor or stranger) walks onto their property. Personal Injury lawyers always pursue deep pockets, wherever they may be . . . .

No, they are not exposed.

Umbrella policies cover those risks (into the multi-millions) for a very small premium.  I know as I have one  

Edited September 2, 2021 by MikeOH
Skip beat me to it, I see

[Hank]

2 hours ago, MikeOH said:

Umbrella policies cover those risks (into the multi-millions) for a very small premium.  I know as I have one  

I have one too. The umbrella itself isn't too costly, but it requires much higher limits on all four of my automobiles. 

[PT20J]

11 minutes ago, Hank said:

I have one too. The umbrella itself isn't too costly, but it requires much higher limits on all four of my automobiles. 

Interesting. Do you have the umbrella with the same company that insures your automobiles? I have State Farm and all they require is minimum liability on the autos (I’d have to look, but I think it’s $100K) and the umbrella picks up from there. When I purchased the umbrella, the agent specifically recommended lowering the coverage on the autos to get complete coverage at the lowest cost.

Skip