Wednesday, May 27, 2015

Protect Your Hard Work

It's late one evening and you are cruising home on the freeway after hanging out with your friends at their house. It is raining lightly, not enough to leave your windshield wipers on, but enough that you have to manually activate them every minute or so. This annoys you to no end. The freeway is fairly empty. You're not speeding and every once in a while another car passes you in the fast lane to your left.

Another car zooms past you, but suddenly veers into your lane and slows drastically. You brake hard, but still hit the back end of the car. On the wet pavement, both cars go into a spin and end up crashing into the center divider.

Fast forward a couple of months. Police reports have been filed, medical visits have been made. Sadly, you were sued. Ever more sad, you lost the case. You now owe close to $400,000 to the other driver for medical and property damages. You had auto insurance and thought you were covered. Unfortunately, the maximum coverage your policy provided was $100,000, so you still have to come up with $300,000 somehow. If you don't have it now, the courts can garnish your future income to satisfy the judgement. You'll be paying this debt off for years to come.

That's just one scenario. If you have a pool and some kid sneaks into your backyard and drowns, you could be liable, even if your yard was gated. You might post an online review of some company, complaining about their service and get hit with a libel or defamation suit. In our litigious society, it seems like you could get sued for just about anything these days and a judgement against you could wipe out everything you've worked for years to build up.

Your protection is insurance. Unfortunately, insurance is probably the only product you can't buy when you need it. You have to buy it in advance. Additionally, it's hard to know what type and how much coverage to get. An auto policy will not protect you if someone injuries themselves at your house. Your boat insurance will not protect you in a car accident. The problem is any one of those scenarios could end up wiping out all your assets and it's just not economically feasible to get a huge amount of coverage on each policy you own. So what can you do?

Enter Umbrella Insurance insurance is the answer. Umbrella insurance is a separate policy that will pay amounts over and above what your other policies pay. For example, in the scenario that opened this blog post, your auto insurance policy would pay the first $100,000 of your judgement and an umbrella policy would cover the remaining $300,000.

The good news is umbrella insurance policies are fairly cheap. You can get one million dollars of coverage for around $200 a year or less - that's about 55 cents per day. Now, the company issuing the policy may require you to have a certain minimum amount of coverage of your regular auto and home policies and they may also require you to have those polices with them. This means you may have to pay more for higher coverage on your basic policies in order to get an umbrella policy. Odds are though, any increase in your costs will be fairly minor and the protection you receive in exchange is significant.

You'll find most umbrella policies offer coverage in multiples of one million dollars. Even if your net worth is way less than that, it still pays to have at least one million dollars in coverage. Remember, a judgement can be entered against your future earnings. If you are relatively young, this can be a serious impediment to your financial goals for years, possibly your entire life.

Don't spend years accumulating a large nest egg only to have it wiped out in a moment. Protect your work and your assets with insurance.


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