Insist upon obtaining the maximum liability coverage when you buy home and auto insurance. Image: Hyejin Kang/Shutterstock.com
By: FEDweek StaffPeople with assets to lose (or the prospect of sizable future earnings) should protect those assets with excess liability insurance, commonly known as umbrella coverage. This umbrella policy kicks in after your other liability insurance (homeowner’s or auto) reaches its limits, and pays for events ranging from your dog biting someone while you are out on your evening stroll to a delivery person getting hurt when slipping on your steps
Umbrella coverage is surprisingly affordable, mainly because the insurer will be at-risk only after your other coverage is used up. In most areas, you can buy $1 million worth of excess liability insurance for $150-$300 per year. If you want to buy $2 million worth of coverage, $3 million, or more, the extra coverage is even less expensive, on a cost-per-million basis.
It pays to shop for umbrellas. Some insurers will issue umbrella policies only if you buy homeowner’s and auto insurance from them, too.
In addition to having umbrella coverage, you might be wise to:
Insist upon obtaining the maximum liability coverage when you buy home and auto insurance.
Pay attention to how your property is titled. “Tenancy by the entirety” (a form of joint ownership) provides considerable creditor protection in some states.
For belt-and-suspenders protection, combine investing with insurance. Life insurance policies may be protected from creditors, depending on state law. If that’s true where you live, consider investing through a variable life insurance policy rather than mutual funds or individual securities.
With a variable life policy, your premiums are allocated among several “subaccounts,” many of which resemble mutual funds. No taxes will be owed, even if you take profits in one subaccount and move money to another.
If money is needed, you may access your investment, tax-free, through policy loans and withdrawals. Eventually, your beneficiaries will receive life insurance proceeds, free of income tax. All the while, moreover, a “hands-off” sign may keep creditors at bay.
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