How much insurance liability coverage should I carry for my personal insurance?
This is a great question. Probably every insurance producer that has procured insurance for a client has been asked this question. An insurance producer may then answer the client by asking, what number causes you to sleep well at night? Perhaps another question is can you tell me how much your loss will be? Then I will tell me how much you need to carry. Although, these answers have an element of truth in them they are over simplified answers to a complex important question. Unfortunately there are no scientific absolute answers however, there are some questions that may help us determine how much insurance limits of liability we should consider carrying.
- How much money is in my retirement account? At our insurance agency we have been told by clients the money I have in my account is protected from judgement by the court. When a client is insistent that the money in their retirement account is not subject to judgments we politely ask them to call their attorney and inevitably they come back and tell us their attorney informed them that this is an asset that is subject to judgments.
- How much equity is in my primary residence? Many people believe that the equity in their home is protected. To an extent people who believe this are correct. Different states have different laws and I of course encourage people to seek legal advice from their attorney. In Arizona we have the “Homestead Act” This act protects the equity in our Arizona primary residence up to $125,000 if we have owned the home for less than five years. It is up to $150,000 if we have owned the home for more than five years. Any other equity is subject to a judgement.
- How much money do I have in my savings and checking account? Are these assets we need to consider protecting? The simple answer is YES. Our savings and checking accounts are subject to judgments.
- What are the expectations of my future wages? Sometimes we hear our clients say I don’t have any assets. Then we answer are you working and drawing an income. The answer is often yes. Then we have to explain the difference between current assets and future assets (which is hard to calculate). Courts can and do order judgments for future wages. When this happens a portion of a persons wages are garnished until the judgement is satisfied. A judgement for future wages is not something any of us want hanging over our heads for years to come.
- What other assets do I own? This is the catch all question. Are there assets we haven’t talked about up until now? Any other assets need to be brought into the equation.
Add up the numbers 1-5. Now is the question if I had a judgement today how much of my personal liability exposure do I want to transfer to an insurance company.
If you have any questions regarding this blog, please contact me. Thank you