Personal liability insurance, also known as personal umbrella insurance, is another product we use to keep our assets intact. Since we live in a litigious society, we believe it is a good strategy to have an insurance policy that can withstand a financial blunder caused by a lawsuit.
What is personal liability insurance?
Your homeowner and auto insurance policies have additional liability protection in their contracts. If you are found negligent in a situation where someone has been injured, your liability protection will pay for things like personal medical bills, rehabilitation, lost wages, etc.
However, coverage amounts are relatively low and can be exhausted quickly depending on the severity of the other party’s injuries.
The coverage of an umbrella personal liability insurance policy takes effect once the liability protection of your other policies is no longer sufficient. It gives you and your wealth added protection.
How about an example of where this policy is important?
Let’s say Bill injures Anne in a car accident. Due to the severity of Anne’s injuries, she is now incapacitated and unable to return to work. Her medical bills are $50,000.
Good news and bad news. Good news: Bill’s car insurance has $50,000 liability coverage. Bad news: Do you think Anne and her lawyer will go after $50,000 alone?
Unlikely. To remind…
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She can no longer work and provide for her family. She can no longer fund her retirement. She has ongoing medical bills that she will have to pay due to her disability. Along with financial hardship comes emotional distress.
So when you look at her lost wages for 20 years, medical bills, retirement, and personal therapy, you’re looking at the multimillion-dollar possibility. If Bill doesn’t have personal liability insurance, his assets are exposed.
So what does exposed mean? They can go after your house, cars, boat, bank accounts, 401,000, etc. All assets held in your name are at risk.
But you don’t even have to be “physically” involved at the site of the injury to be at risk. If someone is injured in your home and you are held liable for the damage, your assets are at risk if you are not adequately insured.
This article is not intended to scare you. It is not intended to instill fear. We encourage you to take preventative measures. We want to inspire you to take action to protect your assets. Like putting on your seat belt in a car, an umbrella policy is an extra layer of protection.
My wife and I have an umbrella policy that provides an additional $5 million on top of what our home and auto policies provide. We only pay $531 per year for the policy. As you can see, the premiums are relatively low.
So consider the benefits of this policy. Use an umbrella policy to cover your assets. Remember… sometimes when it rains, it pours.
The importance of personal liability insurance
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