Asset Protection (Part 1)

People try not to think about the risks and dangers in life, and their risk of losing their assets.  There are many things that can happen that would put your assets at risk, many of which can be caused by others through no fault of your own.

This series will cover a wide variety of topics ranging from the more common methods of protecting assets (insurance) to the less common (irrevocable trusts).

One of the most common methods of protecting assets (and yourself) is insurance.    The fist topic being covered will be automobile accidents and automobile insurance coverages.  Automobile insurance typically follows the vehicle, that means that if you loan your vehicle to someone else, your automobile insurance will probably be the primary coverage for the accident.

Most people with a driver’s license have automobile insurance, because their states require them to have coverage.  Although Comprehensive and Collision coverage are part of the protections offered by most insurance companies, it is minor and the key point is that if you are unable to afford to replace your vehicle if it is destroyed, you should probably have the coverage to replace your vehicle.

One thing to keep in mind while reading this is that as your policy limits increase, the cost of the increase decreases.  I remember when I increased my property damage coverage from $50,000 to $100,000 my premiums went up by around $2.  The reason it is so small is that the likelihood of reaching those new limits was not very high.

The first question is how much coverage should you have?  The general recommendation tends to be a vague answer of “enough to protect your assets if you get sued for everything.”

State minimums vary, but are often only enough to protect minor accidents.  While every accident is unique, I have seen minor injury accidents (broken leg, not serious enough to need a cast but needed physical therapy) exceed $45,000 in bodily injury payments (including pain, suffering, lost wages).  Now imagine a more serious accident and how expensive it can get, such as long term disability if someone loses mental or physical capabilities.

One of the more common limits are often 100/300/50.  This means that if you are at-fault for an accident, you are covered for up to $100,000 per person you hurt (including pain, suffering, and lost wages), but not more than $300,000 per accident for bodily injury coverage.  You would also be covered up to $50,000 in property damage (the damage to the other persons vehicle or other property).

This level of coverage likely covers most accidents, but what if you have a more serious accident?  Can you afford to pay for the excess damages out of your own pocket?

If you are unable or unwilling to pay for the excess damages out of your own pocket, then you should have higher coverages.  Most people are familiar with Automobile Insurance and Home Owners Insurance, but there is another type of policy for excess liability above standard rates for Automobile and Home Owners policies called an Umbrella Policy that typically offer limits of $1 million, $2 million, $3 million, $4 million, and $5 million above and beyond your underlying limits (if you need even more, there are still other options available).

In Part 2, we will discuss how higher insurance limits can also protect you and your loved ones.